Bankers see revival in credit growth as rain gods smile
Bankers are betting on a monsoonaided revival in rural economic growth, as well as festive season demand, for a healthy credit growth, even as they might have consciously tightened their purse strings for unsecured personal loans fearing losses in a slowing economy.
The non-food credit shrunk 1.2 per cent on a year-on-year basis, data released by the Reserve Bank of India (RBI) showed. Recent data also suggested that the rural growth in the fast-moving consumer goods (FMCG) segment witnessed a fall below urban areas for the first time in seven years.
Bankers and economists, though, see it as a temporary phase, which would stay for a few quarters. The late exit of monsoon is good news for the rabi crops, observed monetary policy committee members (MPC) of the RBI while deliberating measures for the October policy, minutes of the meetings showed.
The fall in personal loan growth though, was a result of both demand slowdown, as well as the reluctance of bankers in sanctioning fresh loans. As a result, personal loan growth slipped to 15.6 per cent in August from 18.2 per cent in August 2018. Consumer durable loans slumped, advances against fixed deposits slipped, while advances to individuals against shares and bonds dipped.
Bankers say they took more deposits in the last quarter and gave out less in loans. For example, in the case of Indusind Bank, advances grew at only 2 per cent quarter on quarter, while deposits grew 3 per cent. In the case of Federal Bank, advances grew 15 per cent YOY, while deposits grew 18 per cent.
“This quarter, credit grew at about ~3,800 crore and deposits grew about ~7,000 crore. There was a carrying cost, but we thought it was worth it,” Federal Bank’s MD and CEO Shyam Srinivasan, said during Q2 results conference.
Uncertainty in the job scene is a major deterrent for both the customer as well as the bank from touching the personal loan segment. “Banks have stayed away from personal loans because these are unsecured and the slowdown in the economy is causing job losses. The industry has witnessed a higher delinquency rates in the category of personal loans and credit cards,” said a senior public sector banker.
RBI’S September round of consumer confidence survey also showed a “weak consumer sentiment and tepid consumption demand, especially relating to nonessential items.”
Meanwhile, real estate inventories have piled up even as auto sector is going through its worst downturn.
Rejuvenation in rural economy can ameliorate much of the hardship. And early indications such as festive demand for cash are encouraging in this regard.
In the Dussehra fortnight, currency in circulation rose 1.8 per cent, which is in line with festive season demand for cash in normal times. Diwali may encourage an even better discretionary spending by the people, and spurt in currency in circulation would be an early indication, say economists. Bankers, at least, have already factored in such a possibility. “People are not spending much because of the slowing economy. This is a cyclical factor and it will not remain like this for long,” said Ashutosh Khajuria, executive director and chief financial officer of Federal Bank.
Khajuria has penciled in a good demand from rural areas due to the possibility of a good rabi crop, and the ongoing festive season. “Many banks have given advance salary to their employees. This will give a money multiplier effect. The festive season is looking promising,” he said.
HDFC Bank management, in a phonein with analysts, said that the demand or credit has seen some slump “but it is not that bad and will improve in the second half of the year.” They also said that “the delinquencies in the personal loan book look fairly stable and the early indicators are giving better signals”. HDFC Bank’s personal loan book stood at ~1,021 crore compared with ~834 crore in the year-ago quarter.
Dinanath Dubhashi, managing director and chief executive officer of L&T Finance Holdings, also sees a good monsoon vital for demand revival from the rural economy. “There will be better harvesting in rabi season this year and kharif in the next year. That will improve business sentiment and push demand for credit in rural areas. This is good for our business.”
According to bankers, typically in the first half of the financial year people don’t spend much, but festive season changes that. Credit demand is also coming from the roads, oil and gas and NBFCS sector, and second half of the financial year could be busy time for banks.
Uncertainty in the job scene is a major deterrent for both the customer as well as the bank from touching the personal loan segment