While private consumption decelerated to 4.1 per cent in the first half (H1FY20), the data suggests that retail lending of banks grew 16.6 per cent, which is twice the rate at which overall bank credit is growing. However, there’s catch.
According to CRISIL, a large chunk of the incremental retail loans disbursed by banks was used to buy retail loan portfolios of non-banking financial companies (NBFCs), which have been struggling for over a year to raise funds.
Therefore, if we exclude loans disbursed to buy off pooled assets of NBFCs, the growth in retail lending of banks is actually slower than it has ever been in the last five years. “The slowdown in retail credit growth reflects both macroeconomic challenges, which have constrained loan demand, and fewer loan sanctions by banks because of risk aversion,” said CRISIL.
Growth in lending after deducting securitisation flows shows a fall from 16 per cent in FY18 to around 12 per cent in FY19 and H1FY20. This is the slowest in the last five years, said CRISIL.
In H1FY20, retail securitisation volume grew 39 per cent, while it had doubled in FY19. With the shadow banking sector facing scarce liquidity, NBFCs and HFCs have been increasingly relying on securitisation to be in the game. While the banks turned cautious in lending to NBFCs via the traditional route, they were more than happy to buy good retail assets of the NBFCs, HFCs.
According to CRISIL, overall bank lending for securitisation rose to 31 per cent of incremental bank credit in FY19, compared to 17 per cent in FY17 and 11 per cent in FY15. In H1FY20, this climbed to 37 per cent. About half of the securitisation transactions was for home-loan receivables, while a quarter was for vehicle-loan receivables and around 11 per cent for microfinance receivables.
“The public sector banks depend on securitisation much more than private sector banks do. The private banks have their own risk management systems that may not be available to all PSBs,” said Ashvin Parekh, managing director of Ashvin Parekh Advisory Services.
Analysts believe that the deceleration in retail bank lending is not sharper for large lenders such as HDFC Bank. However, if the overall economy continues to remain under pressure for long, then even large banks could see moderation in growth.
Some experts do not see this as a major challenge in terms of stock performance. In a downturn situation such as this, maintaining asset quality is more important than aggressive growth.
There could be some negative stock reaction in the near term. However, in the long run, the lower lending growth will not impact valuation of lenders till the time their asset quality is intact.