Demand for retail loans expected to continue upward journey: Experts

Credit demand, especially retail credit, is showing steady signs of improvement on the back of a turnaround in economic indicators and sops like reduction in stamp duty offered to boost sale of houses.

Large non-banking financial companies (NBFCs) and a few private banks — that have disclosed December quarter trends of advances — are showing signs of improved credit demand.

Going by Reserve Bank of India (RBI) data, retail loan growth (year-on-year or YoY basis) has shown an upward trend for three months (September-November 2020) in a row.

Consumer financier Bajaj Finance — in its December quarter update — revealed that new loans booked by the company in Q3FY21 (September — December) were 6 million compared to 7.7 million in the corresponding period last financial year (Q3FY20). Sequentially, however, it has seen an improvement, and in Q2FY21, it had booked 3.62 million loans.

Assets under management (AUM) of the financier improved sequentially to Rs 1.43 trillion in Q3FY21, compared to Rs 1.37 trillion. However, in Q3FY20, AUM of the company was to the tune of Rs 1.45 trillion.

Similarly, HDFC, the largest mortgage lender, disclosed that its individual loan business continued to see improvement during the December quarter. Also, disbursements by the mortgage financier increased 26 per cent YoY in Q3FY21. “For the nine months ended December 31, 2020, individual loan disbursements stood at 86 per cent of the levels in the corresponding period of the previous year,” HDFC said. Total advances of the mortgage lender in Q2FY21 rose 10 per cent from a year ago to Rs 5.4 trillion.

Sidharth Rath, managing director (MD) & chief executive officer (CEO), SBM Bank (India) said the traction seen in retail loan growth will hold in the near term. Pick-up in vehicle sales, reduction in stamp duty for home buying and good agricultural growth translated into demand for financing. For the trend to sustain, real economic growth is important.  

Private sector lender YES Bank, on the other hand, in its quarterly disclosure, said its retail loan disbursements, sequentially, doubled (100.9 per cent) to Rs 7,563 crore in the third quarter (Q3) ended December. It had disbursed Rs 3,764 crore in the second quarter (Q2) ended September. Total loans and advances stood at Rs 1.69 trillion at the end of December, up from Rs 1.66 trillion at the end of September, according to BSE filings.

Meanwhile, another private sector lender, IndusInd Bank, said its advances moved up 3 per cent sequentially in Q3FY21 to Rs 2.07 trillion but YoY advances have contracted by -0.13 per cent. Kolkata-based private lender Bandhan Bank said, its advances portfolio increased 5 per cent sequentially to Rs 80,255 crore, which is almost a 23 per cent rise YoY. And, IDFC FIRST Bank, in its disclosure to the exchanges has said, while its overall funded assets (loans) has increased 3 per cent sequentially, its retail funded assets recorded more than 11 per cent growth in the December quarter over the preceding quarter. 

A look at RBI’s data suggests, banks extended retail loans worth Rs 33,107 crore in November, covering housing, vehicle and credit cards. The scale of lending in November was lower than the volume in October, when retail lending was about Rs 39,780 crore. According to RBI data, retail loans grew 10 per cent YoY in November 2020 compared with 16.4 per cent growth in November 2019.

Overall, bank credit growth in November 2020 improved to 6 per cent compared with 5.6 per cent growth in October 2020. Housing loans growth also registered a marginal pick-up in November 2020.

A recent report by TransUnion CIBIL indicated that the demand for retail credit products in India steadily increased in recent months, including November 2020, following the initial shock from Covid-19. Although YoY growth across key metrics is yet to reach pre-pandemic levels, there has been positive momentum for credit demand, the report said.

“On an incremental basis, credit growth is still weak. Despite ample liquidity provided to banks, we are seeing them park huge amount of funds under the reverse repo window of the RBI,” said Anil Gupta, vice-president & sector head, ICRA.