Which are the sectors that have shown the biggest deceleration in credit growth? The Reserve Bank of India (RBI) Mid-Term Review of Macroeconomic and Monetary Developments provides the data. What’s most striking is that despite all the hype about increasing lending to agriculture , bank loans to agriculture and allied activities as on 17 August, grew by 24.4% over the year-ago period—slowing down from the 35% annual growth rate from a year ago.

For the priority sector as a whole, loan growth was 20.2% year-on-year, compared with 32.4% year-on-year in August last year. The slowdown in lending to industry has not been so dramatic, with year-on-year growth falling from 29% to 24.6%.

The apex bank’s data also shows that housing loans grew at a year-on-year rate of 16.6% as on 17 August—down from 21.6% as on 21 May and 30.3% as on 22 December. Loans to consumer durables rose by just 4.1%, but then this category was never very large.

Loans to real estate companies, on the other hand, continue to grow at an annual rate of 52.9%, which is not much of a slowdown. Real estate loan outstandings at Rs46,665 crore are now more than loans to engineering companies—Rs45,179 crore, vehicles and transport equipment—Rs24,923 crore, food processing—Rs39,524 crore, to mention some of sectors. Real estate loans now amount to 20% of housing loans, compared with 13.7% in June 2006.

However, the deceleration in loan growth by no means points to a deceleration in overall growth. That’s because industry has been able to tap other sources of funds. For instance, the numbers show that while bank credit to industry contracted by Rs15,603 crore in the first quarter of the current fiscal year, compared with a much lower contraction of Rs2,336 crore in Q1 last year, that shortfall was more than made up by capital issues, external commercial borrowings, issues of commercial paper and retained earnings. The details are given in the chart.

However, the fact remains that while corporate India may have had alternative sources of funds, that is certainly not true of agriculture (other than access to moneylenders). The real slowdown has happened in the agriculture and personal sectors.

Maruti’s mixed fortunes

Maruti Suzuki India Ltd was the only auto stock to hit a new 52-week high and outperform the market in recent times. But its fortunes have changed in just five trading sessions, in which the stock has lost 16.4%. In comparison, the National Stock Exchange’s Nifty was down just 1% during the same period.

Incidentally, Maruti declared results for the quarter ended September a week ago, but the fall in its share price seems to have little to do with the results. Its revenues rose by an impressive 33%, while operating profit grew 26%, in line with the growth achieved in the first quarter of the current fiscal.

Margins were under a bit of pressure, falling 76 basis points over year-ago levels. But note that pressure on auto demand would have led to higher discounts, besides which the company also had to contend with high raw material costs. Analysts point out that the company was able to negate these pressures by selling a higher proportion of premium cars. In fact, on a per vehicle basis, operating profit improved by 3.6% over last year’s September quarter, mainly because of the change in product mix. Average realizations rose by as much as 10% year-on-year. While some brokerages downgraded Maruti shares after the results, citing cost pressures as a concern, the markets didn’t seem unduly worried. In fact, Maruti shares reached their 52-week high on the day the results were announced.

The slide in the shares started the next day, after the apex bank raised the cash reserve ratio by 50 bps. The markets were hoping for sops to the auto sector, where demand has slowed owing to higher financing costs. In addition, recent news reports suggest that the government would raise fuel prices to compensate domestic oil companies for soaring global crude prices.

It’s also important to note that Maruti’s trailing valuations have corrected sharply to 16 times from well over 19 times just a week ago. Maruti Suzuki still is growing its core earnings by more than 25%, valuations that seem reasonable on a PEG (price-earnings/growth) basis.

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