BackRetail borrowers lift credit demand
As of 5 November, total outstanding non-food credit rose 7.3% from a year ago to ₹110.9 trillion. Between 8 October and 5 November, outstanding credit grew by ₹1.35 trillion
PremiumMUMBAI : Credit growth, which had stagnated for a year-and-a-half, has soared to the highest level since the outbreak of the covid pandemic, Reserve Bank of India data showed, thanks to festival demand for retail loans and a concerted push by lenders.
As of 5 November, total outstanding non-food credit rose 7.3% from a year ago to ₹110.9 trillion. Between 8 October and 5 November, outstanding credit grew by ₹1.35 trillion.
“The demand is quite good. We are seeing a rebound in demand for retail loans, especially that of mortgages. While car loan demand was good initially, it has since plateaued owing to the global chip shortage," a private sector banker said.
The last time credit growth touched 7% was in April 2020; since then, it has remained in a range of 5.1% to 6.9%.
The central bank break-up of credit growth comes with a lag; however, bankers attributed the bulk of it to retail loans, including personal loans, automobile loans, housing loans and credit card loans.
According to the banker cited above, home loan disbursements have surged to cross pre-covid levels. “Based on the feedback I am getting from our staff on the ground, this demand is expected to sustain, and the growth in retail loans is likely to be better than what it was last fiscal," the banker cited above said, seeking anonymity.
Though banks were targeting India’s growing retail credit sector, the covid-led downturn in consumption kept growth in check. Still, retail loans outperformed every other category, even during the pandemic. Now that the economy looks poised for growth, demand for credit is inching up, and bankers believe the momentum will sustain.
As companies continue to fund their investments with internal accruals, retail loans remain the backbone of credit pickup for lenders. While bankers believe the corporate capex cycle will begin in six months, fuelling new loan demand and better utilization of existing credit lines, some are unsure. Rajnish Kumar, a former State Bank of India (SBI) chairman, last week said given many corporates have deleveraged their balance sheets and are cash-rich, a near-term upcycle seems uncertain.
Experts pointed out that rate cuts by most lenders have played a key role in nudging borrowers towards fresh credit. Mortgage rates are at a historic low owing to excess system liquidity, as the central bank retains its accommodative stance. That said, RBI is moving towards a rebalancing of liquidity to ensure that banks have as much liquidity as they need and not excess.
“With the onset of the festive season, bank credit has improved, led by the growth in the retail segment. This rise has been supported with rate cuts by banks to push retail credit, as several banks are offering home loans at record-low interest rates ahead of the festive season," Care Ratings said in a report on 13 November.
Care Ratings expects credit to grow 7.5-8% in FY22, thanks to a low base effect, economic expansion, extended Emergency Credit Line Guarantee Scheme support and retail credit push. “The medium-term prospects look promising with diminished corporate stress and increased provisioning levels across banks. Retail loan segment is expected to do well compared with industry and service segments," it said.
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