Retail lending hit a festive high in September

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MUMBAI : Retail credit growth rose 20% in September, the fastest since the Covid-19 outbreak in 2020, unaware of higher borrowing costs, indicating a robust pickup in consumer demand over the holiday season.

Credit demand was observed across categories for purchases of vehicles, consumer discretionary and home, the mainstay of retail credit.

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Home loans, which account for nearly half of all personal loans, grew 16% 18.05 trillion between September 24, 2021 and September 23, 2022, data released by the Reserve Bank of India showed.

The other personal lending category, which accounts for 26% of total bank lending to individuals, grew even faster by 24.4% 9.73 trillion as of September 23rd.

The personal loans category mainly includes loans for domestic consumption, medical expenses, travel, marriage, other social ceremonies and loans for debt settlement.

The growth in all sub-segments exceeded the sum of retail customer loans 37 trillion at the end of September.

“According to the High Frequency Indicators (HFIs) of the last few months, private consumption – especially urban demand – has remained healthy,” RBI Governor Shakkanta Das said on Wednesday at a conference organized by lobby groups Ficci and the Indian Banking Association.

The contact-intensive services have continued to recover well, supported by the full resumption of activities and the full-fledged celebration of festivals after two and a half years, Das said.

“You see a huge turnout. We all saw it during Ganpati festival in Maharashtra and other places and Diwali. As the data trickles in, we’re noticing that retail sales of various home appliances and other fast-moving consumer goods have improved significantly,” he said.

Data from RBI showed that consumer discretionary lending rose 60.7% in September from a year earlier.

Bankers said they had observed cross-segment consumer demand during the festive season as India geared up for a full-blown celebration after two years of muted celebrations. Demand for auto loans also rebounded in September on an 11% increase in sales.

“This time, not only housing, but also consumer durables and auto loans are in demand,” said the head of personal credit at a public sector bank, asking not to be identified.

He added that while the asset quality of the retail sector is healthy at the moment, the sector needs constant attention to ensure people are paying back on time.

Mint reported Oct. 24 that for 13 banks that reported their quarterly earnings up to that point, the loans were worth post-Covid-19 recast 10,019 crore – mostly to individuals – has gone sour in the six months to September 30.

In an Oct. 31 note, analysts at ICICI Securities said the overall retail loan growth momentum is continuing.

From monthly incremental credit accretion to retail customers 54,100 crore in September, 37% was home loans, 9% car loans, 4% education loans, 7% fixed deposit advances and 38% other personal loans.

“Over the past 12 months, personal loans have grown at an annual rate of 6.1 trillion, of which 41% was residential construction, which is less than the 49% share of the entire retail book,” the ICICI Securities report said.

Others said the latest sectoral loan provision data showed that the spate of recent repo rate hikes had not impacted demand.

“Although a low base may be a reason, credit growth appears solid for the first six months this year. The other main reasons are a return to pre-pandemic conditions and a pick-up in demand. With our domestic demand expected to remain fairly insulated from the global growth slowdown and with the start of the holiday season (October to December), we believe credit demand will remain resilient in the second half,” said Sonal Badhan, economist, Bank of Baroda.

Badhan warned that downside risks could arise from the impact on export demand if major economies slide into recession.

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