Loan flow to slow on default fears

With higher interest rates, bankers today said their loan portfolios will grow at a slower pace, partly because of the caution being exercised by lenders themselves.

Bankers expect delinquency levels to go up, particularly for unsecured personal loans and credit card advances, as borrowers may find it tough to repay dues. The fear of default, which is already being witnessed in certain pockets, has also prompted banks to tread cautiously while disbursing loans.

While most banks that Business Standard spoke to are expecting an increase in bad debt, ICICI Bank Joint Managing Director and CFO Chanda Kochhar said the loan quality will not be impacted.

In fact, a public sector bank chief pointed out that fearing a rise in defaults, most PSU lenders have kept interest rate on loans up to Rs 30 lakh unchanged.

A senior Union Bank of India executive said the bank had issued instructions to its branches to consider increase in loan tenure to avoid defaults. “In current times, this is also a good way to ensure continuous flow of income,” the executive added.

With the Reserve Bank of India (RBI) increasing the repo rate and the cash reserve ratio (CRR), banks have been forced to increase lending rates by 25-100 basis points. Only last month, most of them had increased rates by 50 basis points.

The central bank wants the pace of credit growth to moderate to 20 per cent, compared to around 25.7 per cent at present and bankers said the series of hikes will moderate demand.

“The rise in lending rates will impact the future growth of the bank, but a strong corporate credit portfolio will still help maintaining 15-16 per cent growth in the overall credit for the financial year,” Kochhar said on the sidelines of a seminar. ICICI Bank has pared its retail loan growth target to 5-10 per cent and is being increasingly selective on fresh lending.

“Compared to the last year, there is a slowdown in the credit offtake in small-ticket loans across the industry,” said HSBC India Group General Manager and Country Head Naina Lal Kidwai.

Like Kidwai, who made her bank’s intention of going slow on credit cards clear last week, ABN Amro’s Country Executive Meera Sanyal too said the bank will be more selective for the next eight to 12 months.

“We are seeing higher delinquencies in credit cards, but we are not hit as much as other banks. The risk is higher with those individuals who hold multiple credit cards,” she said.