Retail credit growth to slow this year

HYDERABAD: Retail lending, which has been the torchbearer of bank credit, is likely to fizzle out this fiscal both due to falling demand and lenders tightening borrower assessment norms.

The steep rise in retail loans, which comprises housing, auto loans, personal loans, credit card outstanding and loans to finance consumer durables, has been dutifully making up for the slack in industrial credit offtake for the past few years.

For instance, notwithstanding the slowdown, credit flow to housing loans shot up 16 per cent in FY20, while personal loans and credit card outstanding grew at a phenomenal 20 and 22 per cent respectively. Against the single-digit growth in industrial credit, the robust rise in retail loans neutralised overall bank credit growth at 7.6 per cent in FY20.

But double-digit growth appears uncertain this fiscal. In its report last week, TransUnion Cibil said it expects a drop in approval rates for all major retail products, especially personal loans and loans against property.

It also expects that default rates will increase the most in personal loans and credit cards, followed by home and auto loans. The credit bureau also observed that asset quality for unsecured lending products was likely to be impacted severely due to the pandemic and that the inability of consumers to repay after the moratorium period could adversely impact their credit scores.

According to Abhay Kelkar, vice president of research and consulting, TransUnion Cibil, unlike the last recession, demand for products like credit cards and personal loans will remain moderate this fiscal. Importantly, he added, demand for auto and home loans will remain weak for sometime.

Until now, retail loans were the driving force of bank credit. Every once in a while, RBI sends out a subtle, but informal warning to banks against aggressive retail lending, but banks have hardly tried to contain the trend. S S Mundra, a former deputy governor, RBI was rather direct. “If every banker is searching a nirvana in retail loans then I think a word of caution is needed,” he once noted at a public event.

Low retail NPAs

What makes the retail segment attractive is their low NPA levels. As on September 2019, retail NPAs were just 1.8 per cent against the industry’s 17.3 per cent. As on March, 2020 retail loans accounted for 28 per cent of overall non-food credit