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| Edited By: Neelasri Barman |Source: DNA |Updated: Apr 14, 2018, 02:08 AM IST
Retail credit growth has slowed this fiscal and may not improve even in the next as GDP growth is losing steam and the sentiment continues to be poor, Sumit Bali, executive vice-president (consumer loans), Kotak Mahindra Bank, told DNA in an interview . However, the second half should see better numbers, he said. Edited excerpts:
What kind of growth the bank as well as the industry has seen in its retail loan portfolio so far in FY12?
When this year started, we had anticipated that car sales will grow in single digit and hence, automotive financing will grow in low double digits. But subsequently, the sentiment has worsened due to high inflation, poor stock and job markets, pricey fuel and weak property prices. As of now, we are looking at an auto industry de-growth for this financial year of about 5-10% and auto loan market is likely to be flat. It is primarily driven by poor sentiment since car is a discretionary large-ticket purchase.
Customers will go out and buy a car if they are very sure about stability of future cash flows. The same is the case with home loans which has slowed considerably in places like Mumbai, Bangalore and Hyderabad. We do not see a similar slowdown in a place like Chennai or Delhi NCR where market has been doing well. The credit card industry is flat in terms of cards issued, but for us it is gaining traction and we will be issuing close to about 60-65% more credit cards than what was done last year. Credit cycle for us has been good and we are seeing good repayments and improvement in delinquency numbers month over month. In auto loans, we will grow our disbursements between 5-10%, in home loans we shall be entering some new markets before the end of this year.
Can we say this year has been good for credit cards?
In credit cards, we have reworked our strategy. We are looking to increasingly issue more cards to our existing customers in the group. Kotak Group has a very successful record in various retail businesses and hence, has a large in-house customer base. We can significantly scale up the business by carding our group customer base.
Are banks focusing more on credit cards because credit growth is declining in segments like home and auto loans?
If you look at credit cards, barring one or two players in the industry, everyone wants to run it as a product being offered to the bank customer. For most of the issuers, there is no desire to create a mono line business out of credit cards. As a group, we would like to offer cards to our existing customer base, and having a large base of eligible card customers offers us a unique opportunity. Overall, the credit card industry is flat. New card issuance is offset by attrition in the existing card base. This industry went through very tough times over the last three years and hence, only now we see banks cautiously restart the issuance.
Your bank has recently hiked the savings deposit rate to 6%. Is there scope for further hikes there?
The general consensus is that interest rates are near the peak level, hence it looks difficult to see the rates go beyond 6%.
In the home loan segment, many banks have started offering fixed-cum-floating rate loans. Do you intend to follow?
We are offering floating rate home loans only. I think when we are near the interest rate peak, it is in customer’s interest to go for floating rate loans. Locking into a fixed rate loan now is not advisable for customers as rates are expected to start dropping from the next year.
How do you go about understanding customer needs and structuring value-adds appropriately?
Historically, our strong point has been retail assets whether it is car, truck, construction equipment, business loans, personal loans and the like. We started offering home loans after we had the banking platform. We are offering home loans to open market and also to existing customers in the group. As we grow this business, we are looking at a mix of internal and external synergies. The other great USP for us is that we understand the self-employed-non-professional categories. This is a segment not many financiers understand and we have over the years developed a deep understanding of this segment of customers.
In most of our businesses, this is dominant customer profile. This segment also has been growing very well over the last few years.
What are the challenges in the retail loan segment?
There are fair numbers of challenges in the retail segment. If you see in the last 15 years, you can see who all were in the business and who all exited this business. We have been a very steady player over the last two decades. Retail loans in India offer a lot of opportunity, but it is a very competitive and a risky market. India is a very diverse market and customer behaviour, their decision making to apply for a loan, customer preferences, income assessment, local complexities, local infrastructure to support retail lending all vary very widely. Lending in India has similar complexity as running a pan European business. One needs to have decentralised decision making to be able to make correct calls. Not many players understood the complexity and risk associated in this market and only focused on the opportunity and eventually had to exit the market. All along, Kotak group has been a steady player in the market.
What are your views on the next financial year for retail loans?
In my view, till first half of the next year, we will have significant challenges as the GDP is slackening and the sentiment continues to be poor. We should see better numbers in second half of the next year.
