Banks credit in personal loans too high compared to degrowth in infra sectors: ASSOCHAM

Banks are deploying credit over-enthusiastically in retail finance like personal loans, credit card overdrafts, vehicle loans, while witnessing negative growth in key infrastructure sectors like telecom, power and roads, an ASSOCHAM paper noted on Sunday.

The personal loans portfolio has grown by close to 18 percent in the fiscal ended March 31, 2018, with housing and vehicle loans claiming the lion's share, as per the Reserve Bank of India (RBI) data.

On the other hand, key infrastructures sectors have been witnessing degrowth, rather any uptick, showing a disconcerting scenario, marred by the twin balance sheet problems of the banks and the corporate firms.

For instance, in the Financial Year 2017-18, the credit deployment growth in the power sector was minus 1.1 percent, telecom minus 0.6 percent, roads minus 7.5 percent, cement and cement products minus 3.1 percent.

In the absence of any demand for credit and even the risk aversion by the lenders, the tendency on the part of the banks has been that of a "herd", as rightly pointed out by RBI Deputy Governor N S Vishwanathan.

Cautioning the banks, he recently stated, "There appears to be taking hold a herd movement among bankers to grow retail credit and the personal loan segment. This is not a risk-free segment and banks should not see it as the grand panacea for their problem-riddled corporate loan book. There are risks here too that should be properly assessed, priced and mitigated".

ASSOCHAM Secretary General D S Rawat said that he agreed with Vishwanathan, but the banks are faced with a big dilemma.

"They are in a situation of 'damned if they do, damned if they don't do'. The private sector companies engaged in the building of roads, power and ports and airports are bleeding with a huge debt and some of them are facing the prospects of even insolvency under the Insolvency and Bankruptcy Code (IBC). They cannot be expected to be seeking credits. On the other hand, the banks have to lend to some sectors at least. After all, they are in the business of lending. Under the given situation, the retail trade, personal loans are the only sectors where there is a demand for money. But surely, as pointed out by the RBI Deputy Governor, they cannot be assumed to be free from risks, and the banks must do their due diligence, properly," he said.

The ASSOCHAM also pressed for expeditious resolution of the cases seeking revival under the Insolvency and Bankruptcy Code.

"Unfortunately, there have been too many litigations, even after the lenders agree to resolution plans," Rawat said.