Loans – Retail loan demand recovers in Oct-Dec
Demand for retail loans in India has staged a rebound, but growth remains muted as lenders await clarity on asset quality following the widespread upheaval caused by the pandemic.
Bankers, however, hope that retail loan demand will accelerate if the economy stays on the recovery path, and interest rates remain low because of surplus liquidity.
“We expect retail credit growth to be stronger in the (fiscal) fourth quarter compared to the first three quarters. Under retail, affordable housing loan is expected to do well. Markets like Ahmedabad and Mumbai have opened up. Micro, small and medium enterprises also could see good traction. We are also looking at new products under education loans,” said Padmaja Chunduru, managing director and chief executive of state-run Indian Bank.
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According to a survey by the Reserve Bank of India, retail and personal loan demand rebounded the most after recording the sharpest fall during the June quarter, when the country was under a lockdown. Retail loan demand, which halved in the fiscal first quarter, recovered to a 25% growth in the second quarter and is expected to touch 30% in the third quarter, according to the survey.
A December report on emerging trends in retail credit by TransUnion Cibil showed that state-run banks saw the biggest rebound in retail loan inquiries in the unlock phase, as they restarted operations faster than their non-state rivals.
Private banks, on the other hand, saw an increase in inquiry volumes from a year earlier for the first time in November since February, the report by credit bureau TransUnion Cibil said. While inquiry volumes also saw a spurt in November for non-bank lenders, they still seem to be reeling under the impact of the pandemic, recording the slowest resumption in inquiry volumes among all lender categories.
Among retail loans, home loan inquiries increased 9.1% from a year earlier in November, driven by pent-up demand, low interest rates and attractive payment schemes and discounts offered by developers, Cibil said.
While inquiries have gone up, the supply of new credit has fallen. According to Cibil, originations, as measured by new account openings, were down 26.6% in August. Originations are a function of both consumer demand and lenders’ capacity and willingness to advance credit supply.
“When lockdown restrictions started to ease, there was a marked change in lender behaviour, with some returning to the market far quicker than others. Equally, lender attitude to risk changed, with some providers moving away from the new lending market almost completely,” the credit bureau said.
Small finance banks also continued to be risk-averse as the financial challenges faced by their low-income borrowers are still many.
“Growth is not a priority currently. The focus continues to be on protecting the portfolio. Even though things are looking up, difficulties faced by our customers have not gone away completely—the category of customers that we cater to have been impacted. We need to balance both growth and protection at the same time,” the head of a small finance bank said, requesting anonymity.
Bankers and analysts are expecting overall credit growth to pick up in the next financial year. Rating agency Icra expects credit growth for the year starting 1 April to improve to 6-7% from an estimated 3.9-5.2% this fiscal and 6.1% in the previous year. Retail credit is expected to grow by 7.2-8.6% in the current fiscal year, of which housing is expected to grow by 6.5-7.7%, Icra said.