First sign of slowdown in consumer loans

Rising interest rates seem to have finally hit consumer demand for loans.

Bank credit to the retail segment slowed to 17.7% in May compared with 18.4% in April, data released by the Reserve Bank of India on Friday showed.

“Demand for retail loans was impacted due to continuously rising interest rates. Demand will slow down further in the next few months. But interest rates should peak out over 3-6 months after which we can see loan demand rebounding,” said Vaibhav Agrawal, vice-president- research at Angel Broking.

Loans to buy consumer durables, however, rose to 26.6% in May from a 23.6% in April.
That’s because changing lifestyles and rise in salaries are helping people buy more, said Vivek Mhatre, general manager, Union Bank of India.
Bankers said the coming months will also see an uptick in home loans.

“Retail loan demand will pick up in the festival season. Generally in the first quarter of the year demand is not that high,” said R K Bansal, executive director, IDBI Bank.

Education loans were flat at 18.9% compared with 18.7% in April, as were vehicle loans at 23.9% compared with 24% in April.