Loans Against Stocks, FDs Fall
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.