Banks expect retail credit growth to continue in Q4

The sharp growth seen in retail credit during the festive season is expected to continue in the January-March quarter as banks continue to promote the segment amid hopes that the central bank will cut interest rate this month, say lenders.

“The credit growth in retail in these three months (October-December) has been impressive. We expect this to continue. Generally speaking, we have a lot of headroom for the growth to continue. We expect the growth to continue for at least three more months,” said M S Raghavan, executive director of state-run lender Bank of India.

“The thrust of banks on retail credit is there. There is also a great expectation that interest rates will come down further. For this fiscal, our retail credit growth (target) is 30 per cent and for (meeting) that, the fourth quarter is very crucial,” he added.

Banks’ decision to reduce interest rates on home and car loans during the festive season helped them bring positive results, with retail credit growing at 16.3 per cent year-on-year (y-o-y) till November, the highest this financial year at Rs 8.58 lakh crore, showed Reserve Bank of India (RBI) data. Many banks have also waived or reduced processing fees to drive retail credit. It had increased 13.3 per cent in November 2011.

For the banking industry, retail vehicle loans grew 25.8 per cent in November, compared with a growth of 22.2 per cent in October, while housing loans grew 13.2 per cent in November against 12.1 per cent the previous month.

Axis Bank’s retail advances grew 45 per cent y-o-y and stood at Rs 48,068 crore as on December 31. Retail advances accounted for 27 per cent of the net advances of the private lender as on December 31, compared to 22 per cent last year.

A L Daultani, executive director, Corporation Bank, said: “We have seen a retail credit growth in the quarter ended December 31, which was so impressive that we had not seen this kind in the last three years.”

The street is expecting a 25-50 basis points cut in the repo rate, the rate at which the central bank lends money to banks, in RBI’s third-quarter monetary policy review on January 29. A cut in repo rates may result in banks reducing the interest rates further, making loans cheaper.

“The fourth quarter retail credit growth will be better than the third quarter on the back of further drop in interest rates,” said D Sampath, head-retail banking of Federal Bank. The Kerala-based bank’s retail advances grew 23.61 per cent to Rs 12,201 crore for the nine months ended December 31.