Loans Against Stocks, FDs Fall

The Economic Times - - Finance & Commodities -

Lenders failed to push loans against shares, FDs as they were busy han­dling DeMo im­pact

Mum­bai: Bor­row­ing for punt­ing in stock mar­kets and fund­ing of small scale com­pa­nies slumped dur­ing the De­cem­ber quar­ter as those who bor­row by pledg­ing stocks or fixed de­posits shied away as de­mand con­tracted due to de­mon­eti­sa­tion.

In De­cem­ber 2016, the over­all re­tail loan book of the bank­ing sec­tor rose 13.4%. How­ever, lat­est Re­serveBankof In­di­a­datashows that loans against stocks and de­posits, an im­por­tant com­po­nent of re­tail loans, con­tracted.

Loans against shares con­tracted 20.6% on an an­nu­alised ba­sis (year-on-year) to ₹ 4,700 crore in De­cem­ber 2016, the month that fully cap­tures the im­pact of the currency ban. Dur­ing the same pe­ri­o­dayear­ago,the­seloan­shad risen 19.4%. Loans against fixed de­posits con­tracted 5.5% y-o-y in De­cem­ber to ₹ 60,000 crore, com­pared to a growth of 6.4% dur­ing the same pe­riod a year ago.

Ex­perts say this could be due to lesser fo­cus by lenders to sell loans.Sincethe­seloansare­cross­sold with other loan prod­ucts, these loans did not find a big push. “Typ­i­cally, these prod­ucts –– loans against shares and de­posits –– are push-driven or gen­er­ally cross-sold. Since the en­tire staff (of banks) was fo­cussed on man­ag­ing de­mon­eti­sa­tion, it is likely that there was not much of mar­ket­ing of these loans,” said Har­shal Patkar, an­a­lyst, fi­nan­cial in­sti­tu­tions, In­dia Rat­ings and Re­search.

But in for loans against shares, there­has­beena­cor­rec­tion­inthe value of col­lat­er­als. Stock prices were sub­dued dur­ing the month, which proved as a dis­in­cen­tive to sell these loans. “Post de­mon­eti­sa­tion, we saw cor­rec­tion in stock prices. Prob­a­bly, there was no in­cen­tive from the lenders’ side to push this prod­uct,” said Patkar. “With higher ad­justed loan to value ra­tio, the bor­row­ers’ risk ap­petite too is likely to have­been­im­pacted.”Bor­row­ers pre­fer pledg­ing their sav­ings in FDs and stocks when they need funds be­cause in­ter­est rate on such loans is lower than loans with­out any col­lat­eral.

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