The growth in retail credit this festival season, despite interest rate cuts, could be slower. Bankers say the slowing economy has resulted in consumers spending cautiously and despite the recent cuts, interest rates are still high. So, the growth in retail credit might not compare with those in other years.
“In housing, real estate prices continue to remain high and though banks have reduced interest rates, consumers still feel these are somewhat high,” said R K Bansal, executive director (retail), IDBI Bank. “Also, when the overall economy slows, income levels go down and uncertainty levels go up. So, people are not very comfortable in spending money.”
Earlier this month, IDBI reduced its floating and fixed interest rates on housing loans. While the floating rates for all loans have been reduced by 25 basis points (bps), the fixed rate on home loans has been reduced to 11.5 per cent per annum for all loans for a period of three to five years. The bank has also reduced processing fees by 50 per cent or more on home loans.
The country's largest lender, State Bank of India, is betting on retail loans to offset the slowing in corporate credit. SBI had reduced its base rate on Tuesday and had also earlier cut spreads on consumer loans.
Central Bank of India has launched schemes for the festival season, valid till December 31. “Our past experience shows that in this festival season, growth in retail credit shoots up by an additional 15 per cent because of special schemes. This year, we are expecting similar growth,” said Ram Sangapure, general manager (retail). “Last fiscal, our retail advances portfolio grew 40 per cent. This year, we are expecting slightly less growth, as there is a little slowdown in the economy. The slowdown has impacted housing loans, vehicle loans, as well as white goods purchases.”
He said the target was to increase the retail advances portfolio to Rs 23,000 crore by March 31. For this festival season, Central Bank has reduced the interest rate on vehicle loans by 100 bps to 11 per cent and increased the tenure of repayment. In home loans, it has reduced the rate of interest up to 50 bps in different buckets. The loan repayment period has been extended up to 25 years from 20 years earlier. The bank has completely waived processing fees.
However, there are a few banks which are hopeful that retail credit growth this financial year might not be impacted. “We are expecting retail credit growth of 20 per cent in this financial year. In FY12, we recorded growth of 18 per cent. We are confident we will achieve this growth with the help of our festival offers,” said K Rama Murthy, general manager (retail), Corporation Bank.
Reserve Bank of India data shows retail credit grew 14.9 per cent year-on-year in July, to Rs 8,05,480 crore.