NEW DELHI: Retail loan growth, which has seen a dramatic decline, now appears to be making a recovery. In July, the segment registered a growth of 11.2 per cent (it was slowest in June at 10.5 per cent in the last 12 months), showed the Reserve Bank's monthly credit data. In absolute numbers, the outstanding credit rose to Rs 25.3 lakh crore during the month as against Rs 24.9 lakh crore in the same period of the corresponding year. 

The gradual unlocking of economic activities has also seen the month-on-month growth in credit to the sector inching up 1.6 per cent in July (the highest since February). During the lockdown months, retail loans — covering segments like home loans, vehicle loans, and credit cards — nosedived Rs 62,861 crore in April, followed by Rs 11,928 crore dip in May.

According to the RBI data, segments such as credit card debt (+7.9% YoY) vehicle loans (+8.1% YoY) and other personal loans (+13.3% YoY) drove the recovery in July.

In fact, consumer durables registered a 62.3 per cent growth vs degrowth of 72.5 per cent in July last year. On the other hand, education loans registered a degrowth of 3.8 per cent as compared to a decline of 1.8 per cent a year ago.

Similarly, housing loans, which accounted for 53 per cent of the retail loans, slowed to 12.3 per cent this year in July as compared with 19.2 per cent in July 2019.

Broadly, however, retail credit is still lower than the year-on-year growth over the last two years when it has been in the range of 15-20 per cent. In July 2019, the y-o-y growth in retail loans was a strong 17 per cent. 

Analysts say people aren't feeling confident to borrow even as banks are flushed with funds. The bruised economy, further battered by the outbreak of the coronavirus pandemic, has dragged consumption and the data is in sync with indicators such as falling sales of automobiles, consumer durables and homes.

The slowing growth also comes despite the central bank cutting repo rate by 115 bps since the lockdown was imposed late March.

“Banks continue to remain risk averse, despite availability of ample liquidity, due to the Covid-led uncertainty contributing to weak credit pick-up. We expect overall credit growth to remain slower in the near term as banks are selective in giving fresh loans due to asset quality concerns,” said Sanjay Agarwal – Senior Director, Care Ratings.

Whether the uphill trend in retail loan growth will sustain will be known after repayments start flowing in as the loan moratorium ends.

Besides, another set of much-awaited fiscal stimulus to boost consumption ahead of the crucial festive season would advance credit flow and the larger economy facing recession. It also requires government measures to arrest job losses and increase disposable incomes.