Consumers binge, loans hit roof

Consumer debt is growing fast in India. While personal loans, extended by banks, clocked a furious pace of 28.7% over the previous year, the fastest compared to all other loan segments at the end of February, credit cards are growing at 23.6%, according to the last available consolidated data from the Reserve Bank of India (RBI).

Both loan segments, though the combined volume is still smaller compared to the home loan sector, are growing much faster than housing loans, currently growing at the rate of 19% over the previous year.

Retail loans (home loans, personal loans, educational loans, vehicle loans, consumer durable loans and credit cards) outstanding for Indian banks during April-February is Rs 13,74,900 crore, growing at the rate ot 19.2%, while the overall bank credit – at Rs 65.77 lakh crore, is growing at the rate of 9.7% over the previous year. Personal loans accounted for Rs 2,98,200 crore of the total retail loans, credit cards Rs 38,500 crore. Total home loans by banks stand at Rs 7,35,900 crore.

The economics research wing of India's largest lender, State Bank of India (SBI), said in a report that the household debt as measured by credit outstanding per credit card in India has been rising both in nominal and real terms (after being adjusted for wholesale price index, or WPI inflation). "In nominal terms, the outstanding per credit card stood at Rs 8,668 as of February 2016, a rise of 15.5% year-on-year," said the report.

Interestingly, delinquencies on the unsecured loans are lower for most banks compared to their corporate loans.

A senior SBI official told dna, "The reward points on the credit cards are enticing consumers to use them for frequently. For example, we have schemes such as annual-fee waiver if annual spends on the credit card are over Rs 2 lakh. Incentives are driving the growth. As for the personal loans, we are reaching out to consumers with quick approvals which is making it easy for consumers to avail these loans."

For SBI, the delinquencies on their credit card and personal loans have been falling to 0.6% to 0.7%, lower than the bank's delinquencies reported a year back, said the official.

HDFC Bank, a big player in the retail loan segment, attributes the big push in consumer credit to the digital initiatives and better distribution through bank's network expansion. HDFC has a flagship 10-second personal loan, which accounts for close to its 10% personal loan origination in the third quarter ended December 31, 2015.

Paresh Sukthankar, deputy managing director, HDFC Bank, said in an analyst call after the bank's third quarter results in January, "Our turnaround times have come down sharply. In the somewhat challenging environment, we've been able to either maintain or increase our share on the back of a number of initiatives like the whole range of the digital initiatives which is increasing the attractiveness of the product and have increased the distribution of all our retail asset products in new branches," said Sukthankar.

The divergence between the deposit and credit growth has increased recently. While all scheduled commercial banks (ASCB) deposit growth has hit 53-year low of 9.9% in 2015-16 (as on March 18), the credit offtake has shown some improvement, at 11.3%.

For ICICI Bank, the loan growth continues to be driven by the retail segment, which grew by 24% year-on-year and constituted 43.8% of its total loans as of December 31, 2015. Mortgage and auto loan portfolios grew by 24% and 21% respectively on a year-on-year basis. On the retail side, the bank hopes to achieve a 25% growth for the rest of the year over the previous year.

"Benign inflation trajectory might also be one of the reasons leading to higher consumer spending," SBI report added.