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Growth in retail loans slows down most in a decade

Retail loans have been the strength of most Indian banks, driving credit growth over the last four years. But the juggernaut seems to be slowing down. In September, for the first time in more than a decade, retail banking growth was in single digits. Mint takes a look.

Retail loans have been the strength of most Indian banks, driving credit growth over the last four years. But the juggernaut seems to be slowing down. In September, for the first time in more than a decade, retail banking growth was in single digits. Mint takes a look.

How did the retail loan growth fare in Sep?

Retail loans comprise home loans, auto loans, credit card outstanding, personal loans, consumer durables loans, loans against shares/fixed deposits, education loans, etc. In September, the growth in these loans stood at 9.17% vis-a-vis September 2019. Overall bank loan (non-food credit) growth fell to 5.77%. The interesting thing is that this is the first time in more than a decade that retail loans have grown at less than 10%. The last time something like this happened was in August 2010, when retail loan growth was 8.76%. That was in the aftermath of the financial crisis of 2008.

What else does retail loan growth reveal?

The growth in retail loans has been slowing since February. Unlike many other economic parameters that have improved after the lockdown restrictions were eased, the figures have deteriorated in the case of retail loan growth. Growth in retail loans during April and May, when the lockdown to prevent the spread of coronavirus was on, stood at 12.06% and 10.59%, respectively. These figures were higher than the retail loan growth in September. Also, it is worth mentioning that between March-end and September-end, retail loans of banks have increased by just 18,060 crore or 0.71%.

Record low
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Record low

What does this mean in the overall scheme of things?

It could hint at two prominent factors. First, banks are going slow on retail lending in the aftermath of the pandemic, unsure whether individuals who want to borrow are going to be in a position to repay. Second, individuals are not in the mood to take on fresh loans at this point in time, where income certainty remains a major risk.

Are home loans also seeing a similar trend?

Growth in home loans segment is mirroring the trend seen in the overall retail basket. The growth in September vis-a-vis last year stood at 8.51%. This is the slowest since May 2012, when growth was at 8.1%. Home loans given out by banks form around two-thirds of overall home loans. This figure questions the optimism that the real estate industry has been trying to project lately. While it is understandable that people might use their savings to buy small-ticket retail products, the same can’t be true for homes.

How have home loans performed since Mar?

Between March and September, home loans granted by banks have increased by just 20,860 crore or 1.56%. Home loans have grown more than overall retail loans because there has been a contraction in other retail loans. During the same period last year, home loans had grown by 93,079 crore or 8.02%. This clearly tells us that people are not taking on home loans at the same pace as they were last year.

Vivek Kaul is the author of Bad Money.

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