Credit cards make merry in time of demonetization

Pushed by demonetization, credit card spends of consumers grew the fastest during the current financial year, with most banks reporting higher spends. The year to date (April 2016 to January 20, 2017) spends on credit cards rose 32% to Rs 49,800 crore, faster than any other segment of bank credit.

The retail loans as a segment showed a considerable slowdown in credit with year-on-year (yoy) growth falling to 12.9% from 18% to Rs 15,23,600 crore at the end of January 20, 2017. The gross bank credit growth was an insignificant 3.3%.

The consumer durable loans bucked the overall trend, growing at 17.1% compared to the previous year and year-to-date growth at 11.8%, second-highest after credit cards.

Jairam Sridharan, chief financial officer (CFO), Axis Bank, said, "Demonetization did accelerate electronic payments and in that the credit cards as well. More customers took to cards and the existing customers increased their intensity of their spends. But credit cards is only a small segment of bank credit, but certainly, its growth has been very positive."

The home loans outstanding of Rs 8,21,600 crore, which was growing at over 18% last year, is now down to 13.5% (yoy growth) and the year-to-date growth is only 10%. Personal loans also saw a sharp drop in growth to Rs 328,200 crore with yoy growth at 13.5%, a sharp fall from the 25.5% reported same time last year. However, during the year, personal loans grew at 11%.

During this period, the gross bank credit grew by a paltry 3.3% lowest in more than a decade as the demand for credit continued to wane with economic activity remaining subdued.

The worry in these numbers for bankers is that retail bank credit which was the mainstay of bank credit has also started to slow down its pace of growth.

"Many companies are trying to de-leverage their balance sheet and not take more credit on their books. So the numbers may be looking negative," Sridharan said.

RBI's sectoral deployment of credit data released for the period up to January 20 shows that non-food credit growth grew only by 3.5% over the previous year. Industrial credit remained weak de-growing by 5.1% over the previous year.

Religare Securities said in a report, "The medium and small & micro segments continued to bear the brunt of demonetization with loans to these segments declining over 8%. Retail loan growth moderated further to 12.9% while agri loans grew 8.1%. We believe the ill-effects of demonetization on consumer durables, vehicle and home loans will be felt in January-March of 2016-17, which is likely to put pressure on overall credit off-take."

Credit to large companies continued slow with loans reporting a de-growth of 4.4% while at the same time last year it was growing at 7%. credit to small & micro enterprises de-grew 7.4% over the previous year and to medium scale industries by 10.2% over the previous year. The slowdown was acute in food processing, textiles, engineering and chemical products.

A senior SBI official said, "Many companies are also shifting to meet their credit needs from the corporate bond market where the rates are cheaper. So though even our corporate book has seen a de-growth, our investment book shows a growth as we have invested in many of the corporate bonds."

Infrastructure loans declined 8.7% over the previous year as telecom and power sector loans dropped 12.6%. Services credit growth stable at 8.1%. Religare added in its report, "Credit to the services sector remained largely stable on a month-on-month basis at 8%. Services have done relatively better than industries. An improvement in growth was witnessed in sub-sectors like shipping and trade as compared to last month."