Banks see gradual pickup in their retail lending biz2 min read . Updated: 08 Oct 2020, 05:41 AM IST
Bulk of the demand for retail loans is to purchase low-cost houses and two-wheelers
Retail borrowers are starting to return to the market, bankers and analysts said, in yet another sign of returning normalcy after months of gloom.
Bankers said that bulk of the demand for retail loans—which is driving loan growth at most Indian lenders—is for purchasing low-cost houses and two-wheelers. Some lenders have also introduced multiple relaxations to attract borrowers, who have avoided fresh loans since the coronavirus outbreak cast a shadow over jobs and incomes.
“Definitely, there is some demand coming from the retail segment, and the first among these to pick up will be housing loans, as there is still a lot of gap between people owning homes and living on rent," said Pallav Mohapatra, chief executive of Central Bank of India, a public sector lender. Mohapatra said several people who lived on rent faced ill-treatment from their landlords in the form of arbitrary notices during the pandemic. “Now, they want to buy this asset, even if it erodes their savings to an extent," he said.
Preliminary data also seems to suggest that retail customers are looking at loans again.
Data from credit bureau TransUnion Cibil showed inquiry volumes for home loans, although still below January and February 2020, were back to the same levels seen during the same time last year, in July and August 2019. This, TransUnion Cibil said, could possibly be due to lenders completing pending transactions, and consumers seeking to switch their existing home loans to lenders offering better interest rates after rate cuts by RBI. When a consumer applies for a loan, the lender seeks a credit information report from credit bureaux, called an inquiry.
Non-bank lenders too are seeing retail demand, particularly for low-cost housing loans.
“As far as home loans are concerned, we have seen a good pickup in demand and developers tell us that customers are expressing a desire of owning a house. We are seeing good demand in affordable and mid-sized home section," Rajiv Sabharwal, CEO, Tata Capital Ltd said last week.
Citing the lender’s conversations with developers, Sabharwal said the number of inquiries are as much or even more than what it used to be before covid-19. “My personal view is that residential real estate should do well at this point. The government of Maharashtra has lowered the stamp duty, thereby lowering the cost of acquisition," he added.
Having burnt their fingers in the last bad loan cycle, Indian banks are largely reliant on retail loans to drive growth. However, the sheer size of corporate loans has ensured that the share of loans to industries is still greater than retail in total outstanding bank loans. But, retail is growing faster than its corporate counterpart. It rose 10.6% year-on-year (y-o-y) to ₹25.48 trillion as on 28 August, as compared to a 0.5% y-o-y growth to ₹27.78 trillion in loans to industries.
“According to our discussion with banks, momentum in retail growth is picking up with some segments like tractors, two-wheelers, gold disbursements and affordable housing seeing the fastest improvement," analysts at Motilal Oswal said in a report.