Amidst slowdown in retail loans, personal & credit card loans come to banks' rescue

Credit cards and personal loans, which make up a bank's unsecured retail segment, have helped lenders achieve business growth.

Credit offtake, which was struggling at multi-year lows of around 5 percent for the banking sector, was up in the second half of March, owing largely to a spike in the unsecured retail portfolio. Both personal and credit card loan portfolios witnessed an increase over last year’s growth of 25.2 percent and 23.7 percent, respectively.

Bankers and industry experts see this trend continuing for fiscal year 2018 amid lesser interest among private companies to invest in new projects.

The growth in personal loans and credit card loans come in the wake of a slowdown in other categories.

During the second half of March, housing loans -- the cash cow of all banks -- observed a slowing of growth from 18.8 percent to 15.2 percent. Moreover, vehicle loans grew at nearly half the pace as last year from 22.7 percent to 12.5 percent in the last 15 days of fiscal year 2017, the latest Reserve Bank of India (RBI) data showed.

Apart from the two segments, consumer durables was the only segment that saw a rise in growth to 17 percent in March FY17 from 16 percent in the year-ago period.

“Unsecured lending is surely growing rapidly for the past few months now. On the positive, we think this growth is more rational than in 2008-09 (crisis years) because there is Credit Bureau Information now and most banks are mining their existing customers which was not the case earlier. So, ratios don’t look alarming and delinquencies are well within what they can price it but still they mirror the trend of that period... So, loss rates are well within the range," said Abhishek Bhattacharya, Head of banks and financial institutions at India Ratings and Research.

While personal loans grew by 27.6 percent at Rs 3.77 lakh crore, credit card loans grew by 38.4 percent at Rs 52,100 crore, in the second half of March.

Services sector growth also jumped by 19.5 percent as against 9.1 percent a year ago.

Corporate or industry loans continued to de-grow at -2 percent at Rs 26.78 lakh crore as on March end 2017 showing distress in the sector.

Bankers expect the challenges in the economy to linger on leading to slower wholesale portfolio growth while retail segment will remain the growth driver.

Overall, retail segment grew slower by 17 percent at Rs 16.24 lakh crore, as against a growth of 19 percent a year ago.

Bhattacharya said banks are looking at home loans, adding that retail will continue to grow and it will be a closer proxy of a nominal GDP pick-up and banks will stay away from corporates as they aren’t generating revenues. "The bounce-back for GDP will be consumption-led and retail lending segment will continue to grow by around 19-20 percent range," he added.