The quantum of outstanding retail loans has come neck and neck with loans extended to the industry for the first time in Indian banking history, shows bank credit data released by the Reserve Bank of India. This, as banks and non-bank lenders have focused on retail lending for at least the last five years as weak investment and high leverage has kept demand for corporate loans low.
Bank credit data outstanding as of the end of February, released on March 31, shows outstanding retail loans stood at Rs 27.74 lakh crore, just shy of the Rs 27.86 lakh crore in loans to the industry. Retail loans have already surpassed Rs 26.6 lakh crore in credit outstanding to the services sector.
Retail loans have recorded close to 14% annualised growth over the past decade, while industry loans grew at a much lower 4% during the period. Loans to the services sector have grown at an annualised rate of 10%.
“Corporate lending has slowed down significantly over the years because of the pending bad loan and twin-balance sheet issues,” said Abizer Diwanji, leader-financial services at the advisory firm EY. “This was coupled with a slowdown in bank credit to the sector as economic activity stalled during the pandemic.”
Besides declining bank credit to the corporate sector, the growth in personal loans can also be attributed to the improved credit-scoring, better data availability on individuals and digital reach.
“The rise in retail loans is mainly due to the infrastructure that got created over the past decade that has given banks the confidence to grow both secured and unsecured retail loans,” said Rajiv Anand, executive director at Axis Bank Ltd. “Besides, there has also been a behaviour shift among customers who have become more open to taking credit than what was the case earlier.”
The factors contributing to the growth, he said, include easy availability of transaction and credit history of individuals, faster authentication through Aadhaar and PAN cards, better credit-scoring with the help of credit bureaus and instant disbursal of loans via digital means.
“All these factors have led to banks developing very strong underwriting capabilities for the retail segment, especially for personal loans that are also authorised immediately for select borrowers,” said Anand.
But the fast-paced growth in the retail segment may not be a sign of good times for banks that have earlier burnt their fingers while lending to the corporate segment.
“Even within retail loans, there is tough competition among lenders to grab a higher market share and if banks do not remain careful with their underwriting practices, there could be a rise in bad loans even in this segment,” said Diwanji.
As of January, soured retail debt made up about 30-40% of the total loans up for sale in the fiscal year 2020-2021. In total, banks and other lenders put Rs 15,000-20,000 crore up for sale during the year, of which close to Rs 6,000 crore were retail bad loans. Besides, a Dec. 8 report by Macquarie Research said that retail non-performing assets could spike to a 10-year high of 4% in the coming quarters. As of March 31, 2020, the system-wide retail NPA ratio stood at around 2%, lower than 3.9% reported in March 2009, right after the global financial crisis. BloombergQuint