Bank Credit Growth Hit By Subdued Corporate Demand, Says Citi Research's Kunal Shah
Credit growth in India should range between 13% and 14% in the next couple of years, Shah said.
Subdued corporate demand is weighing on the credit growth of lenders in the country, said Kunal Shah, director of India bank and financials at Citi Research. It's moving towards a single-digit number, which is much below average credit growth, he said.
Corporate credit has the potential to improve credit growth, he said. "The industry needs to see investment activity pick up. Looking at the corporate side, it's largely working capital that has driven the demand. It's not the investment activity which has driven the corporate credit requirement," Shah said in an interview to NDTV Profit.
To some extent, retail has driven credit growth, he said. Lately, Citi Research has observed a moderation in unsecured lending following a standard increase in risk weight. Another segment that saw faster growth was lending to non-banking financial institutions, which is now five to seven percentage points below the average. All of these are pulling down credit growth, he said.
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Kunal Shah, Director, India bank, financials Citi Research, is speaking to NDTV Profit Executive Editor Niraj Shah at BKC Studio, Mumbai. (Source: NDTV Profit)
Credit growth in India should range between 13% and 14% in the next couple of years, Shah said.
He said that there are other constraints on the resource front. Deposit growth has been sluggish. Most of the lenders are now anchoring credit growth targets in terms of how they are able to mobilise resources, Shah said.
As there's a clear focus on margin management, many lenders are going slow on the credit side and prioritising high return on asset opportunities rather than getting into segments with relatively lower return on assets.
ICICI Bank Is Citi's Top Banking Pick
In terms of consistent performers, ICICI Bank Ltd. continued to be the top pick. The lender can do better in terms of growth, Shah said.
HDFC Bank Ltd. and IndusInd Bank Ltd. also remained in Citi Research's preference list.
Shriram Finance Top Pick Among NBFCs
Shriram Finance Co., Cholamandalam Investment and Finance Co., and L&T Finance Ltd. are Citi Research's top picks in the segment.
Many non-banking financial companies were able to maintain their growth. It was in line with or better than expected for a few leading players. Many players in the segment also saw their margins hold up.
"If the NBFCs are able to hold up the asset quality, there is scope for growth," Shah said.
There is a narrative surrounding rate cuts, suggesting that the easing of wholesale rates will provide support to NBFCs much sooner. Citi Research has observed that NBFCs perform better when re-rating occurs earlier.
