For private sector credit supply, July has been the month of autumn. Never ever has July seen a positive net credit supply--not at least since the central bank started disseminating monthly credit data, going as far back as FY07: July, thus, was no different!
Given their respective business cycles, textile, food, and commerce segments--whose combined outstanding loans are about 42 percent of the total--usually see a month-on-month fall in net credit off-take. And again, last month was not different.
But, what made July 2015 different was the magnitude of net retirement. Central bank data show that loans to private sector businesses dropped 1.37 percent month on month in July--the biggest monthly drop since FY12. In absolute terms, net credit retirement in July 2015 stood at Rs38 billion as against Rs27 billion in the same month of last year.
Last month's net retirements were led by 4.5 percent decline in outstanding credit by food and beverages sector that retired Rs18 billion on net basis in July-followed by 2.28 percent fall in net monthly credit by textile sector--leading to a net retirement of Rs12.7 billion last month. In contrast, food and beverages had retired Rs14 billion in July 2013, whereas textile sector borrowers had retired Rs1.7 billion.
Net retirement of the third major sector in terms of total outstanding loans, the commerce and trade sector was much the same in July 2014; in effect, a tad lower. Central bank data show that the sector retired Rs7.8 billion in July 2014, as against Rs8.2 billion in the same month of last year. This seems to go well with the theme of the return of consumer, as highlighted in FY14s commentary on credit (See BR Research column: The return of the consumer, August 5, 2014)
That column had also highlighted the rise in consumer financing. It noted that "while net retirement by house building segment has almost come to a halt (with net borrowing of Rs300 million in FY14), borrowings for auto sector and personal financing have been on the rise for the second year running".
Interestingly, however, last month's net consumer financing went back into the red. About Rs1.1 billion was retired in July FY15 on net basis--the biggest net monthly retirement since September 2012. A comparison with net consumer borrowings of Rs7 billion in July last year puts the last months number in the right perspective.
But then, the decline in consumer financing last month was perhaps because of lesser financing obtained for cars. July's auto sales numbers were low, as consumers have held back their decisions in anticipation of new models. The same somewhat reflected in auto financing with only Rs315 million borrowed last month as against an average of Rs1.2billion in 2H FY14.
In other words, consumer financing may have seen the biggest monthly retirement since 2012 last month; but it would be pre-mature to wonder whether the green shoots are turning brown.
As for the whooping retirements in textile and food and beverages sectors, one should take into account that FY14 had seen record borrowings by both these sectors. And considering that most of these loans are for working capital; higher retirements by these sectors can be expected to be the norm in the non-peak season.
The bottom line is that credit off take in July may be down; but the return-of-the-consumer theme seems to be intact--at least for now. Though the future may depend on what comes out of the ongoing political crisis.