Retail loans take lead as corporate demand slips
Banks aggressively push retail credit amid lacklustre demand from firms
Aggregate borrowings by individuals have outstripped loans to businesses for the first time as banks aggressively push retail credit to make up for the lacklustre demand from companies.
Outstanding retail loans stood at ₹28.58 lakh crore as of July 30, while loans to industries stood at ₹28.24 lakh crore, the Reserve Bank of India (RBI) data showed.
Given the size of corporate loans, their total outstanding had always exceeded retail credit until now. However, companies have shown little appetite for loans over the past year, and individuals have borrowed heavily to benefit from the low interest rates.
Loans to companies have remained sluggish for some time and grew 1% from a year ago as of July 30. However, among large businesses, loans have shrunk the most at 2.9%.
In contrast, retail loans outstanding have grown 11.2% from a year earlier as of July 30, with borrowers choosing to pawn gold jewellery and take personal loans.
Credit against the yellow metal rose 77.4%, albeit on a low base, to ₹62,412 crore as of 30 July, RBI data showed.
Meanwhile, corporates continue to deleverage and explore alternative funding routes.
While capacity utilization at factories is improving, they are yet to reach pre-covid levels and, therefore, credit demand is low, a senior banker said on condition of anonymity.
“The overall non-food credit growth continues to be driven by agriculture and allied activities, and retail segments during the
MUMBAI:
Outstanding bank loans (in
Retail
Jan
Industry
Feb
Mar month of July. Slower growth in industry and services segment continue to restrict the overall credit growth,” Care Ratings said in a September 1 report.
According to Care Ratings, overall credit growth is expected to be in the range of 7.5% to 8% in FY22, with a low base effect, economic expansion, ECLGS or sovereign-guaranteed loan support, and retail credit push.
“The medium-term prospects look promising, with diminished
lakh crore)
Apr
May
Jun
Jul corporate stress and increased provisioning levels across banks. Retail loan segment is expected to do well as compared with industry and service segments,” it said.
Bankers believe that as the economy recovers from the shock of the second Covid-19 wave, the September and December quarters would see better corporate credit growth. They have lined up pipelines of sanctioned loans for corporate borrowers, which will be drawn based on the pace of demand recovery.
“I am seeing that there will be a good amount of traction in corporate credit coming up from the end of Q2 or Q3 onwards. This is in anticipation that there are a good number of industries; for example, steel is doing extremely well, and many companies are going to enhance their capacity utilization by going for further investment,” S.S. Mallikarjuna Rao, chief executive of Punjab National Bank, told analysts on August 3.
Similarly, State Bank of India chairman Dinesh Khara said on 4 August that he does not expect much of a challenge in growing the retail book in FY22 either.
“When it comes to credit growth, we have seen that our commercial clients (mid-corporates) are seeing improvement in utilization in FY22. We are seeing that in certain sectors like iron and steel, there is an improvement in activities. We saw an under-utilization of about 30% last time when we met, but this time, in the commercial client group, it is 25%, a slight improvement,” Khara said.