 "Lenders: Multiple triggers for faster retail loan growth")
Overall bank credit has grown at a sluggish pace in the past two years at below 10 per cent. The only silver lining has been the double-digit growth in consumption loans.
Private banks have been leading the race, with most lenders reporting retail growth well above 15 per cent. With a 20 per cent rise in pay for central government employees, demand for retail loans should go up further.
"This year we will see even better retail growth as with the revision in salaries because of the Seventh Pay Commission, it is estimated that about Rs 1 lakh crore more will be available. Also, we have the festive season, when demand picks up anyway. So, it is possible that retail credit growth can be anywhere between 18-22 per cent for the industry," said Ashutosh Khajuria, executive director, Federal Bank.
Rating agency ICRA expects annual retail credit growth to improve to about 20-21 per cent in financial year 2016-17 (FY17), as against a 17.2 per cent compound annual growth rate over the past five years, on the expectation of a pick-up in economic growth and fall in interest rates. The small expansion in growth rate is significant given the size of the retail loan market.
With the clean-up of bank balance sheets underway, public sector lenders have also started pushing the pedal on retail loans.
Usha Ananthasubramanian, managing director, Punjab National Bank, said retail credit showed signs of pick-up. "We are looking at targeting those benefiting from rise in salary with the Seventh Pay Commission kicking in and defence personnel getting an increase in salaries, for extending consumer and home loans. There is aspiration to have a bigger place (home), which is expected to give a push for growth in credit," she added. The lender's retail loans covering segments like housing and vehicles rose 19.7 per cent in the 12 months ending June 2016.
"Credit demand in the micro finance, home loans and mortgage segments is expected to remain buoyant, while growth in the commercial vehicle and other key retail NBFC asset classes whose prospects are linked to infrastructure and manufacturing, are also expected to see an uptrend," added the ICRA report.
Lenders are continuing to grow not only the secured book, but even the unsecured portfolio, which includes credit cards and personal loans. However, unlike the 2008-09 economic crisis when lenders, especially private banks, reported high levels of bad loans in the retail segment, this time around the asset are healthy.
Bankers say this is because, unlike last time, risk supervision methods have been strengthened and they are mostly sticking to their own customers, which provides them a clearer picture of the customer's financial profile. Apart from this, data from credit rating/profiling agencies also help in ensuring a detailed credit history check, which ensures that risk is mitigated.
"As with most cycles, we don't see any immediate concern on the retail portfolio, especially when we look at the steady acceleration in loan growth and contribution to overall loans. This should give banks more comfort to build business from this segment," said a report by Kotak Institutional Equities.
Private banks have been leading the race, with most lenders reporting retail growth well above 15 per cent. With a 20 per cent rise in pay for central government employees, demand for retail loans should go up further.
"This year we will see even better retail growth as with the revision in salaries because of the Seventh Pay Commission, it is estimated that about Rs 1 lakh crore more will be available. Also, we have the festive season, when demand picks up anyway. So, it is possible that retail credit growth can be anywhere between 18-22 per cent for the industry," said Ashutosh Khajuria, executive director, Federal Bank.
Rating agency ICRA expects annual retail credit growth to improve to about 20-21 per cent in financial year 2016-17 (FY17), as against a 17.2 per cent compound annual growth rate over the past five years, on the expectation of a pick-up in economic growth and fall in interest rates. The small expansion in growth rate is significant given the size of the retail loan market.
With the clean-up of bank balance sheets underway, public sector lenders have also started pushing the pedal on retail loans.
Usha Ananthasubramanian, managing director, Punjab National Bank, said retail credit showed signs of pick-up. "We are looking at targeting those benefiting from rise in salary with the Seventh Pay Commission kicking in and defence personnel getting an increase in salaries, for extending consumer and home loans. There is aspiration to have a bigger place (home), which is expected to give a push for growth in credit," she added. The lender's retail loans covering segments like housing and vehicles rose 19.7 per cent in the 12 months ending June 2016.
"Credit demand in the micro finance, home loans and mortgage segments is expected to remain buoyant, while growth in the commercial vehicle and other key retail NBFC asset classes whose prospects are linked to infrastructure and manufacturing, are also expected to see an uptrend," added the ICRA report.
Lenders are continuing to grow not only the secured book, but even the unsecured portfolio, which includes credit cards and personal loans. However, unlike the 2008-09 economic crisis when lenders, especially private banks, reported high levels of bad loans in the retail segment, this time around the asset are healthy.
Bankers say this is because, unlike last time, risk supervision methods have been strengthened and they are mostly sticking to their own customers, which provides them a clearer picture of the customer's financial profile. Apart from this, data from credit rating/profiling agencies also help in ensuring a detailed credit history check, which ensures that risk is mitigated.
"As with most cycles, we don't see any immediate concern on the retail portfolio, especially when we look at the steady acceleration in loan growth and contribution to overall loans. This should give banks more comfort to build business from this segment," said a report by Kotak Institutional Equities.