Transcript Presentation

Capital Investments to drive credit growth
Nagarajan Narasimhan
Director – Research
CRISIL Limited
16th June, 2010
Outline
• CRISIL’s Macroeconomic outlook
• Banking credit growth to revive
• Banks need to monitor asset quality
• Banks well capitalised to support growth
2.
CRISIL’s Macroeconomic outlook
3.
CRISIL’s Macroeconomic outlook
2009-10
GDP*
(y-o-y%)
7.2%
2010-11 P
8.0%
Rationale
Private demand, both on consumption and investment side, are
expected to drive GDP growth close to its trend level in FY11. Normal
monsoon is assumed.
* Agri growth at 5.5%, Industry at 8.6% & Services at 8.4%
Private Consumption
4.1%
(y-o-y %)
WPI inflation
(average)
10-year G-sec
(March-end 2011)
Rs per US$
(March-end 2011)
Legend - Risk level
Low
Neutral
High
Note: P: Projected
4.
3.8%
7.8%
45.1
6.5%
With improvement in the economy and recovery in employment
scenario, consumer confidence should begin to pick-up, resulting in
relatively high growth in private consumption.
6.5 - 7.0%
Rising commodity & agricultural prices and a rollback of excise duty
cuts would keep inflation high in H1FY11. Inflation is expected to be
around 6.5% at March-end 2011.
8.3 - 8.5%
Larger net borrowing programme by the government as compared to
last year along with monetary tightening (to fight inflation) would
pressurize 10 year G-sec yield.
Currency appreciation to continue as foreign investment inflows
43.5 - 44.0 gather pace, although growing current account deficit should reduce
the pace of appreciation.
Industry leads recovery in 2009-10
Demand Drivers Growth (y-o-y%)
12.0
10.5
9.8
9.5
10.0
8.2
8.7
8.0
6.0
4.7
3.9
4.0
1.6
2.0
0.0
-0.2
-2.0
FY08 FY09 FY10
QE
AE
FY08 FY09 FY10
QE
AE
Agriculture Growth (y-o-y%)
Industry Growth (y-o-y%)
FY08 FY09 FY10
QE
AE
Services Growth (y-o-y%)
• 15 out of 17 industries in IIP recorded positive growth during Apr-09 to Feb-10
• Revival in economy has resulted in higher capacity utilisation, growth in revenues
and improved profitability for Indian corporates
• GFCF growth, after being subdued over last 2 years, is expected to grow by 12.5%
in 2010-11
5.
Banking credit growth to revive
6.
Global economic meltdown impacted industry in early 2009…
Vulnerability to demand slowdown
Low
Medium
High
Airline Services,
Cotton Yarn,
Pig Iron,
Man-made Fibres,
Real Estate,
Readymade Garments,
Sponge Iron
High
Alternate Energy,
Fertilisers,
Hospitals,
Tea,
Sugar
Crude Oil,
Natural Gas,
Pharmaceuticals,
Power,
Telecom Services
Aluminium,
Auto Components,
Construction (non-housing),
Household Appliances,
Organised Retail,
Paper,
Petrochemicals,
Ports,
Road
Banking,
Cars & Two-wheelers,
IT,
ITeS,
Media (electronic & print)
Cement
Airports,
Auto Finance,
Commercial Vehicles,
Hotels,
Shipping,
Steel Products
Medium
Financial Stress
7.
Low
Due to their leveraged
capital structure, these
sectors were
particularly hard hit by
the decline in demand
following the global
economic meltdown.
… but situation has improved in last 3 quarters for Corporate India
Aggregate Sales and Operating margins
2,500
30.0
25.0
2,250
20.0
2,000
15.0
1,750
10.0
1,500
5.0
1,250
0.0
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sales (Rs bln)
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Operating margin (per cent)
Based on sample of 200 leading companies across 22 different sectors
Source: CRISIL Research
• Upward trend in revenues along with positive economic indicators points to better days
ahead
8.
Commercial sector’s high dependence on banking credit
Rs 7805 billion
Rs 8340 billion
Rs 9708 billion
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007-08
Bank credit
9.
ADR/GDR and short term credit
2008-09
Public issues/ Pvt placement and CPs
2009-10
FIs
ECB / FCCB
FDI
Backdrop for credit growth
10.
Advances to grow over 20% annually over next 2 years
(Rs billion)
60,000
35%
(per cent)
70
50,000
30%
60
25%
50
40,000
20%
30,000
15%
40
69
38
31
36
36
28
30
21
29
21
22
20
20,000
17
10
5%
-
0%
25
27
20
13
10%
10,000
26
14
16
9
12
Advances
Growth (RHS)
Retail credit
2011-12 P
2010-11 P
2009-10 E
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
P
P
2002-03
0
Industry & other commercial credit
P: Projected
• Acceleration in economic growth, sustained thrust on infrastructure and recovery in
exports to support growth in banking credit
• Term loans to corporates for financing capital expenditure projects would be the
largest contributor to growth in banking credit
• Retail credit to revive due to growth in housing and auto loans
11.
Infrastructure to drive investment growth
9,000
Rs 6709 billion
Rs 7272 billion
Rs 8453 billion
(per cent)
(2009-10 to 2011-12)
Power
16%
8,000
Other
Infrastructure
sectors
28%
7,000
(Rs billion)
6,000
Oil and Gas
13%
5,000
4,000
3,000
2,000
Telecom
Services
8%
Roads & ports
14%
1,000
2009-10 E
2010-11 P
2011-12 P
Power
Oil and Gas
Telecom Services
Metals
Other Manufacturing
Roads & ports
Other Infrastructure sectors
Other
Manufacturing
14%
Metals
7%
E: Estimated; P: Projected ;
Other manufacturing includes Cement, Automobiles, Textiles, and Fertilisers
Other infrastructure includes Irrigation, Urban infrastructure, and Airport Infrastructure
• Infrastructure investments to grow at a CAGR of 17% over next 2 years
• Latent demand to drive investments in power, telecom and gas distribution
• A need for quick and efficient transportation of passengers and goods to drive
investments in sectors like roads, railways, ports and airports
• India’s competitiveness as a manufacturing destination would drive investments
in steel, aluminium and automobiles
12.
Infrastructure as a proportion of industry credit
Proportion of bank lending to infrastructure to increase further
35%
60%
30%
55%
50%
25%
(2009-10)
Textiles
9
Other industries
43
Metals
13
45%
20%
40%
15%
35%
10%
Engineering
6
30%
5%
25%
0%
20%
2004-05
2005-06
2006-07
Infrastructure proportion
•
(per cent)
2007-08
2008-09
2009-10
Infrastructure
29
Infrastructure credit growth (RHS)
Banks will continue to play a crucial role in financing infrastructure projects
–
Share of infrastructure lending in industry credit has increased from 16% in March 2004 to 29% as
of March 2010
–
•
Expected to reach low-to-mid 30s over next 2 years
However, development of secondary market for infrastructure bonds and success
of take-out financing is critical to support investment in infrastructure
14.
Banks need to monitor asset quality
15.
GNPAs expected to increase to 3.6 per cent by 2010-11
(Rs billion)
4.0%
1,600
1,400
3.6%
3.3%
1,200
3.0%
1,000
2.5%
2.3%
2.3%
2.8%
800
600
2.0%
400
200
1.0%
0
Mar-06
Mar-07
Mar-08
Mar-09
Absolute GNPA
Dec-09
Mar-11 P
Gross NPAs (LHS)
P: Projected
• Some of the restructured assets likely to turn into NPAs
– Industries like Iron & Steel, Textiles, Commercial real estate, Infrastructure and chemical & pharmaceuticals
contributed to 50%- 55% of the restructured assets
• Banks require Rs 620 billion to meet new provisioning norms by March 2011
• Close watch on asset quality and risk-based credit pricing are the need of the hour
16.
Banks well capitalised to support growth
17.
Government’s thrust on capitalisation bodes well for industry
(Times)
14.00
16%
12.00
14%
12%
10.00
10%
8.00
8%
6.00
6%
4.00
4%
2.00
2%
0.00
0%
2000-01
2001-02
2002-03
2003-04
2004-05
Networth to NNPA
2005-06
2006-07
2007-08
2008-09
CAR (RHS)
• As of 2008-09, every Indian bank had a CAR of over 10 per cent
• Only 20% of the banks, mainly PSBs, had a Tier-I CAR of less than 8%
• Hence, government’s thrust on capitalisation by budgeting Rs 165 billion augurs
well for PSBs
• High net worth to net NPA ratio also provides adequate comfort
18.
www.crisil.com
www.standardandpoors.com
19.