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| Durables, auto loans hit hard | |
| BS Reporter / Mumbai October 17, 2008, 0:46 IST | |
Over-all retail credit growth slumps to 14 per cent for the year to June 2008.
A dramatic slowdown in consumer durables and auto loans has pulled down the over-all retail credit growth to around 14 per cent for the year to June 2008, against over 23 per cent in the year to June 2007. Higher interest rates and decisions by banks to go slow on lending to consumers have combined to apply the brakes on what was till last year the fastest growing segment for bank loans.
While the growth rate slowed down across all segments of retail lending – home loans, personal loans and credit card receivables – consumer durables and auto loans were hit the hardest, according to the latest data available with the Reserve Bank of India. Bankers said that they see a further slowdown in retail loan demand having taken place since June, as interest rates rose even further from August.
| Retail credit growth |
| In Rs crore |
Year up to June |
Y-o-Y growth
in per cent
|
| 2007 |
2008 |
| Housing loans |
230,700 |
259,000 |
12.27 |
| Personal loans |
161,000 |
193,000 |
19.88 |
| Auto loans |
86,000 |
87,000 |
1.16 |
| Credit card receivables |
21,000 |
30,000 |
42.86 |
| Consumer durables |
6,000 |
4,000 |
-33.33 |
In the case of consumer durables financing up to June 2008, the decision by certain large banks to withdraw from the segment, owing to fears of defaults, added to the pressure. As a result, the total loans to the segment fell from around Rs 6,000 crore in the year to June 2007, to a little over Rs 4,000 crore up to June this year.
Since the start of the current financial year, lenders such as ICICI Bank have moved away from the system of collecting equated monthly instalments (EMIs) through post-dated cheques. Instead, the purchase can only be made through credit cards.
In the case of auto loans, bankers said the rise in interest rates has been primarily responsible for the growth rate falling from around 30 per cent up to June last year to a little over 1 per cent now. With rates rising, customers are unwilling to pay higher EMIs. In addition, bankers said, the amount of credit availed has also decreased, from around 85 per cent of car cost earlier to 70-75 per cent now, since car buyers want to keep a check on the instalments that they have to pay.
Housing loans too saw a drop in the growth rate; but more than EMIs, it was the elevated property prices which are being blamed for this. The only segment that saw the growth rate stay around the same level – around 20 per cent this year, compared with 23 per cent up to June 2007 – was personal loans. While banks have been reluctant to sanction fresh personal loans on account of a rise in delinquency levels, banking sources said the rise could partly be attributed to card holders shifting outstanding balances to personal loans.
| Incremental credit growth (Y-o-Y) |
| Sector |
Up to Growth |
Up to Growth |
| 31-Aug-07 |
(%) |
Aug 29, 08 |
(%) |
| Industry |
1,44,000 |
24.4 |
2,20,000 |
30.6 |
| Petroleum products |
8,000 |
25.2 |
30,000 |
91.8 |
| Fertiliser |
-588 |
-6.2 |
2,000 |
21.4 |
Non-food gross
bank credit |
3,58,296 |
24.4 |
4,89,183 |
26.8 |
Non-food credit,
excluding oil, fertiliser |
3,50,815 |
24.5 |
4,57,382 |
25.6 |
| Note: Some figures have been rounded off |
Credit card receivables up to June 2008 rose around 43 per cent to Rs 30,000 crore, compared with a 50 per cent jump up in the corresponding period last year.
At the over-all level, however, despite the rush for funds by oil marketing companies, it is the industrial sector which has pushed up growth in credit. According to the RBI data, on a year-on-year basis the incremental, non-food, gross bank credit is estimated to have grown 26.8 per cent, by around Rs 4,90,000 crore at the end of August this year.
Till the end of August last year, the incremental non-food gross bank credit had risen 24.4 per cent, by around Rs 3,60,000 crore. RBI had projected a 20 per cent increase in credit flow during 2008-09, and even repeated increases in interest rates had not managed to lower the growth rate.
The public sector oil marketing companies — which have neither been allowed to raise retail prices despite soaring crude petroleum prices, nor been paid the subsidy due to them – have been the major borrowers, accounting for an additional Rs 30,000 crore from the banks. The growth in incremental flow of credit to the petroleum companies was estimated in the year to August 2008 at over 90 per cent, up from 25 per cent in the year that went before. As a result, the petroleum companies accounted for around 6.5 per cent of the incremental non-food lending, compared with 2.3 per cent in the period up to August 2007.
What also added to the pressure on banks was the demand from fertiliser companies, which borrowed around Rs 2,000 crore up to August this year, compared with loan repayments of nearly Rs 600 crore in the corresponding period last year. Like oil firms, fertiliser companies too rushed to banks as the government was unable to clear the subsidy bill. With a rise in international prices, the government had exhausted the entire fertiliser subsidy allocation for 2008-09 by July.
Despite these unusual factors, it was demand from industry which remained buoyant and added to the overall non-food credit growth. The flow of credit to large and small industries is estimated to have grown over 30 per cent to around Rs 220,000 crore. But bankers said that, unlike in the previous two years, the demand for working capital was much higher. “In addition, we have already committed to term loans and the disbursals are going on as per schedule,” said a bank chairman.
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