Demand for retail loans in India has staged a rebound but growth continues to remain 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 while surplus liquidity will sustain a low interest-rate regime.
“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 Chundru, managing director and chief executive at Indian Bank.
According to a survey by Reserve Bank of India, retail and personal loan demand rebounded the most after recording the sharpest fall during the June quarter when the country experienced a strict 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 report from credit bureau TransUnion Cibil titled Emerging Trends in retail credit caused by pandemic issued in December showed that state-run banks saw the biggest rebound in retail loan inquiries in the unlock phase, as they were early in recommencing operations than their private peers.
Private banks, on the other hand, saw an increase in inquiry volumes from the year earlier for the first time in November 2020 since February. While inquiry volumes also saw a spurt in November for NBFCs, 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 the year earlier in November, driven by pent-up demand, reduced interest rates and attractive payment schemes and discounts offered by developers, Cibil said.
While inquiries have gone up, supply of new credit has fallen. According to the data provided by 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,” Cibil said.
Small finance banks which lend to small value borrowers also continue to be risk averse as the health of these borrowers are still to see to return to normal levels.
“Growth is not a priority currently. The focus continues to be on protecting the portfolio. Even though things are looking up but 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 growing and protecting at the same time,” said the head of a small finance bank.
Bankers and analysts are therefore expecting overall credit growth to pick up only in the next financial year. Rating agency Icra has forecast credit growth for FY22 to improve to 6.0-7.0% from an estimated 3.9-5.2% this fiscal and 6.1% in fiscal year 2020. Retail credit is expected to grow at 7.2-8.6% in the current fiscal year, of which housing is expected to grow at 6.5-7.7%.
Retail loan demand recovers in Sep-Dec