Retail loan growth dips as consumption slows down

Consumer demand in India is slowing down, shows the slackening pace of growth in car, education and personal loans. 

Though the gross bank credit in 2018-19 picked up, growing at the rate of 12,2% as against 8.2% reported in the year-ago period, retail loans slowed down, flagging off concerns of a further slowdown in the economy, which was cushioned partly by buoyant consumer demand.

“In certain segments like the auto industry where there is a slowdown, the vehicle loan growth is impacted. In other segments like personal loans, the base was very high last year, so it is coming to reasonable levels,” Praveen Kumar Gupta, managing director, State Bank of India, said.

Retail loan growth slowed to 16.4% to Rs 22,20,700 crore over the preceding year at the end of March 31, 2019, according to data on loan growth released by Reserve Bank of India. 

The slowdown was sharpest in vehicle loans, which slowed down to 6.5% over the previous year. In the year-ago period, vehicle loans were growing at 11.3%. Education loans was another segment that took a big hit with loans decelerating 2.5% over the previous year to an outstanding loan book of Rs 68,000 crore. In the same time last year, the deceleration was only 0.5%.

“The slowdown in the pace of retail loans is partly a reflection of the general slowdown in the economy. The other reason is the correction from the high growth retail loans witnessed in the last few years to more sustainable levels,” said D K Joshi, chief economist with credit rating agency Crisil.

The high yielding unsecured credit was the mainstay of retail loans for private sector lenders like ICICI Bank, HDFC Bank and Axis Bank, but the overall growth of these loans came down sharply after public sector banks clamped down on disbursing credit via personal loans and credit cards. Besides for most part of the year, 11 public sector banks were also under the prompt corrective action (PCA), a regulatory prescription to clean up the balance-sheets of banks with high non-performing assets (loans unpaid for over 90 days).

The growth in personal loans almost halved to Rs 6,06,800 crore, growing at the rate of 19.4% over the previous year. The year-on-year growth in the preceding period was 35.5%. Outstanding on credit cards grew only by 28.6% to Rs 88,300 crore, lower than the 31.6% reported in the year-ago period. Banks have stopped undertaking consumer durable loans for a few years now as a measure of prudence so the growth in these loans decelerated by a whopping 68% with outstanding loans of just Rs 6,300 crore.

Only home loans showed growth after priority sector home loans were clubbed to the general category loans. Housing loans including priority sector home loans grew by 19% over the previous year to Rs 11,60,100 crore as the thrust for priority sector home loans increased. In the year-ago period, home loans were growing at only 13.3%.

With the IL&FS default, liquidity became tight in the debt market, forcing companies to flock to banks for their working capital requirements. Credit to industry improved, growing 6.9% to Rs 28,85,800 crore, improving from the mere 0.79% industry borrowed from banks in the year-ago period, when they depended on the bond market for much of their finance.