Banks to continue focusing on retail credit in FY14

Credit demand from corporate sector may not pick-up even in this fiscal

Banks are once again relying on retail credit in the current financial year to drive credit growth. This is because credit demand from the corporate sector may continue to remain weak.

In the previous financial year, banks had focused a lot on retail credit as corporate credit demand had slowed down amid economic growth at its slowest pace in a decade.

“This year, too, retail credit will largely drive credit growth. That is because demand for credit from the corporate sector is weak. We at State Bank of India (SBI) are focusing a lot on home and car loans,” said Pratip Chaudhuri, chairman of the bank.

Other large bank chiefs also hold the same opinion. “Positive steps are being taken to boost the corporate sector. Corporate credit will pick up as we move on. But, as of now, it will be retail credit which will drive growth,” said K R Kamath, chairman and managing director, Punjab National Bank.

Reserve Bank of India (RBI) data show retail loans have increased by 13.5 per cent in February this year, compared with an increase of 12.2 per cent in February 2012. According to Vaibhav Agrawal, vice president (research), Angel Broking, home and auto loans will drive retail credit growth. “As the economy revives and inflation starts coming down, we will see more pick in retail credit,” said Agrawal.

He expects retail credit growth to be better this financial year.

RBI data also show credit to industry increased 14.7 per cent in February 2013, compared with the increase of 19.1 per cent in February 2012.

Deceleration in credit growth to industry was observed in all the major sub-sectors, barring beverage and tobacco, leather and leather products, wood and wood products, petroleum, coal products and nuclear fuels, cement and cement products, chemicals and chemical products and infrastructure.

A report by Espirito Santo Securities released in last June said Indian retail credit penetration was still among the lowest in the world and fares poorly even in comparison with some of the other emerging economies such as China, Russia and Brazil.

The report had also pointed out that it was a difficult business to build, unlike corporate banking, and here a pro-cyclical strategy does not help in building a sustainable retail banking franchise.

However, a few bankers feel corporate credit demand may see some revival. “The corporate sector may pick up which will result in credit demand. In the corporate sector, growth is seen coming from the infrastructure space,” said R K Bansal, executive director, IDBI Bank.

Experts expect retail credit growth in FY14 to be better than last fiscal

Home and auto loans to drive retail credit growth

Indian retail credit penetration still among the lowest in the world

Retail credit is a difficult business to build