Home / Industry / Banking /  Retail loans rebound as mortgages get cheaper

India is seeing a revival in retail loans after a period of lull following the pandemic as customers once again venture out to buy new homes and even pawn gold for money.

Experts say the uptick is being facilitated by low interest rates, especially in the mortgage segment. Banks like State Bank of India (SBI) and ICICI Bank have crossed what they call ‘landmarks’ in home loan portfolios at 5 trillion and 2 trillion, respectively. Weighted average lending rates on new loans have dropped 68 basis points (bps) since March 2020, when India imposed a lockdown aimed at containing the spread of covid-19.

Gold loans, on the other hand, have increased with several state-run banks entering an arena dominated by non-bank lenders. Loans against gold jewellery more than doubled from a year earlier to 43,141 crore as on 29 January, according to Reserve Bank of India (RBI) data. Retail loan segments such as loans against fixed deposits, education loans and loans against shares saw a decline.

Among other retail categories, loans for consumer durables grew 14.6% in January from a year earlier, albeit on a low base. In absolute terms, such loans grew 944 crore in the 12 months through January 2021, whereas the absolute growth in home loans was 1 trillion in the same period. Home loans, the major chunk of retail loans from banks, grew 7.7% from a year earlier in January. While this was lower than the same period a year earlier, the growth rate has certainly rebounded after August.

Even RBI said recently that steps such as reduced stamp duties in Maharashtra and Karnataka have helped boost demand for housing. “There are signs of a turnaround, as evidenced by a spurt in property purchases in the recent period mainly on the back of support extended by the government to this sector," it said.

Analysts at Emkay Research expect overall retail credit growth to accelerate, led by mortgages and supported by unsecured loans such as credit cards and personal loans, along with vehicle loans. They believe that current market conditions favour banks armed with lower funding rates, strong balance sheets, better asset quality and a strong captive customer base.

“Large private banks such as HDFC Bank (despite suspension in new card acquisition) and ICICI Bank have been at the forefront of retail growth momentum, while Kotak Mahindra Bank too is finally showing signs of much-needed growth and trying to raise the retail game," it said in a report on 5 March.

Meanwhile, corporate lending, which typically does the heavy lifting for bank credit, has stagnated in the past couple of years as companies deleverage their balance sheets. In fact, loans to industry contracted 1.3% from a year earlier in January to 27.81 trillion. However, analysts expect the tide to turn in the coming quarters, in tandem with a revival in consumer demand and government spending.

“We believe industry growth can emerge as a key driver for credit growth with 6% growth in FY22 and 13-15% growth over FY23-25," ICICI Securities said in a report 4 March.

Owing to a retail push, aggregate non-food credit (comprising retail, industry, services, agriculture and priority sector loans) grew 6.61% from a year earlier as on 12 February. The level was last seen in the initial phase of the pandemic.

“The bank credit growth rose as compared with previous fortnight ended 29 January which can be ascribed to an increase in retail loans further led by falling weighted average lending rates," Care Ratings said in a report 5 March, adding that retail segment accounted for 29% share of the total credit in January as compared to 28.1% a year ago.


Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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