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CRISIL Research expects industry credit to moderate to 17 per cent in 2012-13 owing to drop in capital investments acrosssectors. Banks' retail portfolio too is expected to witness moderate growth in 2012-13 due to the counterbalancing impact ofdecline in interest rates and moderate growth in underlying asset sales. The services sector credit growth is expected tomoderate to 11-12 per cent in 2012-13.

Credit growth across all sectors to moderate

- What is the occupation-wise share in credit?- How has credit growth fared across sectors?--

Oct 22, 2012

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Industrial credit growth to moderate in 2012-13 Industrial credit growth is expected to decline to about 17 per cent in 2012-13 from 21.4 per cent in 2011-12, owing to reasons of

uncertainty in economic growth, substantial slowdown in new investments, extended gestation period of current investments and the

impact of input supply shortages on the viability of projects.

Based on monthly disaggregated data published by the RBI, it is evident that industrial credit growth in 2012-13 is already showing

signs of moderation. Moderation in credit has been witnessed across industries such as textile, cement, metals and the

infrastructure sectors. Overall bank credit to industry grew by 17.2 per cent y-o-y in July 2012.

Occupation-wise deployment of credit

P: Projected

Source: RBI, CRISIL Research

Infrastructure credit growth to slow down further in 2012-13 Bank credit to infrastructure projects had accelerated over the last few years till March 2011. The share of infrastructure credit in

banks' total loan portfolio increased to 14.4 per cent in March 2011 from 9 per cent in March 2008.

In 2011-12, infrastructure credit growth declined due to decline in credit to the power and telecommunication sectors. During the

year, new private investments in power faced issues over coal linkages and pricing, while state electricity boards were faced with

rising losses in transmission and distribution. Road projects also confronted multiple issues that include land acquisition as well as

lack of financing for over-leveraged developers. Moreover, most banks have almost exhausted their lending limits for these sectors.

The infrastructure sectors, therefore, need to explore other avenues of financing such as take-out financing or floating infrastructure

bonds in the secondary market. Meanwhile, loans to infrastructure segments such as power and telecom continue to be

restructured.

As we expect these trends to continue into 2012-13, we expect infrastructure credit growth to moderate during the year.

Growth in bank credit across sectors

No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

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Source: RBI, CRISIL Research

Credit growth in the services sector to taper in 2012-13 Growth in the services sector is driven by growth in trade, commercial real estate and non-banking financial companies (NBFCs). In

2011-12, trade, hotels, transport slowed down following the deceleration in industrial activity. The deceleration in transportation was

reflected in the slowdown in production of commercial motor vehicles.

In 2011-12, credit to the services sector grew by nearly 13 per cent. In the services sector, credit to NBFCs grew the most, followed

by loans to trade, tourism, hotels and restaurant sectors. In July 2012, growth in the services sector was about 15 per cent, with

slowdown being evident mainly in shipping and commercial real estate segments. Moreover, the services sector's performance has

a strong linkage to industrial growth, which is expected to moderate. Due to the above factors, credit offtake by the services sector is

expected to decline to 11-12 per cent in 2012-13.

Retail credit growth to remain stable in 2012-13 In 2011-12, retail credit slowed down due to high interest rates. Credit growth in categories such as housing, advances against fixed

deposits, vehicle loans and education decelerated during the year. CRISIL Research expects banks' retail loan portfolio to be

marginally higher at about 15 per cent in 2012-13 as compared with 14.7 per cent in July 2012, mainly due to increase in demand

for retail loans during the festive season and shift in the focus of financiers on retail loans given the slowdown in corporate and

infrastructure lending. The proportion of personal loans in overall credit is expected to stay stable at about 18 per cent in 2012-13.

No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

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