Will the rush for retail loans pay off for banking industry?

Retail loans may take over as the largest segment in overall bank credit during 2020-21. The segment, comprising home, auto and personal loans besides others, has already dethroned services sector (outstanding Rs 26.6 lakh crore) from its second spot and is trailing behind the industrial segment, which has a narrow lead.

Latest data from the Reserve Bank of India shows that outstanding retail loans stood at Rs 27.74 lakh crore as on February, just a few notches below industrial credit outstanding at Rs 27.86 lakh crore.

In percentage terms, retail loans now constitute 29 per cent of the total outstanding loans, while industrial credit comprises 29.1 per cent. 

By the time data for the month of March gets published, chances are this could reverse. But whether the retail segment can retain the top spot and for how long depends on the speed at which industrial credit resumes growth.

Currently, industrial credit is witnessing degrowth, but once it gets back to the positive territory, the retail segment will find it tough to keep up the pace as it’s made up of scores of small ticket loans and banks have to crank out higher and faster disbursals.

On the other hand, industrial loans comprises three sub-segments small, mid and large but much of the growth in value terms comes from large industries taking out big ticket loans, translating to fewer number of borrowers.  

“Industrial credit continued to degrow at 0.2 per cent in February. However, the pace of deceleration moderated. These trends were expectedly led by large industrial credit and which constitutes 82 per cent of industrial credit and which de-grew 1.5 per cent year-on-year. Micro and small industries also grew at just 1.5 per cent year-on-year,” noted Krishnan ASV, sector analyst, HDFC Securities.

Within retail, housing, vehicle loans and credit cards are the three biggest sectors. The housing section alone accounted for 52.3 per cent of all personal loans.

Overall, the segment grew by 9.6 per cent over the previous year, after hitting a 10-year low at 9.1 per cent in January.

This trend was led by home loans, which grew 8.5 per cent, followed by other categories.