Banks' retail loan base shrinks

Flow of personal loans declines 0.1 per cent in the year to October 2009.

The tightening of credit norms for unsecured loans is showing. According to data, flow of personal loans declined 0.1 per cent in the year up to October 2009, as against a 15 per cent rise a year ago. The Reserve bank of India’s (RBI’s) definition of personal loans includes loans for housing, credit card outstandings, consumer durables finance by banks, education loans and advances against fixed deposits. Over the last five years, this segment, termed as retail lending by banks, was the main growth driver for most entities.

While lower unsecured lending was part of the strategy adopted by banks following the credit crisis, the demand for housing loans dropped over the last 18 months as buyers deferred purchases due to high real estate prices and uncertainty over income.

While RBI India has not disclosed the latest numbers for credit cards and consumer durable loans, Deputy Governor Shyamala Gopinath said the contraction in these segments was continued. When RBI had last released the disaggregated data, in the year up to August 2009, credit card outstandings were lower by 14.3 per cent. Similarly, consumer durables loans had declined 16.7 per cent. During the year up to August 2009, the personal loan segment had seen a 2.3 per cent rise.

According to data published in the RBI Bulletin, at the end of October, the credit card base had dropped 21 per cent to 21.1 million, as against 26.7 million a year ago. The outstanding had declined by 12.13 per cent to Rs 5,660 crore at the end of October 2009, from 6,442 crore a year ago.

In the year to October, the overall bank loan growth slowed to 9.9 per cent from 29.4 per cent in the previous year, when demand had peaked as the credit crisis intensified. Gopinath said that credit flow (y-o-y) to agriculture grew 19.9 per cent (23.4 per cent during the year ended October 2008), followed by industry (14.8 per cent as against 37.4 per cent) and services sector (6.3 per cent as against 35.5 per cent).

But two sectors on which RBI maintains a close vigil were not as severely impacted by the overall credit slowdown. Loans to real estate and non-banking finance companies continued to record a high growth of 21.2 per cent (44.2 per cent in October 2008) and 20.8 per cent (60.5 per cent), respectively, Gopinath said.

The deputy governor said that Indian companies had funded a large part of their investment in the on-going long capital expenditure cycle from retained earnings. RBI data showed that during the year ended October 2009, of the incremental non-food credit, 61.2 per cent was absorbed by industry, while 15.8 per cent went to the services sector (compared with 28.4 per cent a year ago).

There was a 0.2 per cent decline in incremental flow towards personal loans as banks were culling credit cards and stopped financing consumer durables.

Within industry, a bulk of incremental credit was absorbed by infrastructure (70.6 per cent), basic metal and metal products (16.9 per cent), textiles (4.1 per cent) and construction (2.9 per cent). The shares of infrastructure, basic metal and metal products, beverages and tobacco and paper and paper products in total incremental credit to industry increased in October 2009 from its level a year ago.