While most sectors of the economy are seeing a sluggish loan demand due to high interest rates, credit card spending seems to have bucked the trend.
Credit card outstanding in the first seven months of the current financial year has increased 7.2 per cent, as compared to 8.3 per cent decline during the year-ago period. According to latest data released by the Reserve Bank of India, the growth, on a year-on-year basis, was five per cent till October 21, as compared to a 22 per cent decline in the previous year.
Credit card outstanding stood at Rs 19,401 crore as on October 21, which is higher by Rs 1,300 crore since March 25 and by Rs 923 crore over the past one year. This September even saw a rise in the number of outstanding credit cards, for the first time in 17 months. The number increased to 17.63 million from 17.59 million in the previous month, according to RBI data.
| BANK CREDIT DEPLOYMENT INTRO COMES HEAR (IN %) | ||
| Sector | Oct 21,’11 vs Mar 25, ‘11 | Oct 22, ‘10 vs Mar 26, ‘10 |
| Consumer durables | -15.1 | 6.2 |
| Housing (including priority sector) | 6.9 | 7.9 |
| Advances against fixed deposits | 0.7 | 4.4 |
| Advances against shares, bonds, etc | -10.5 | -2.1 |
| Credit cards | 7.2 | -8.3 |
| Education | 12 | 13.6 |
| Vehicle | 7.3 | 13 |
| Other personal loans | -3.1 | 1.9 |
| Commercial real estate | 4.9 | 12.8 |
| Non-banking finance companies | 5.6 | 15.5 |
| Source: Reserve Bank of India | ||
It said, “Personal loans increased by 14.5 per cent (y-o-y) in October 2011, higher than the growth of 12.0 per cent in the previous year, with its components such as housing, advances against fixed deposits and credit card outstanding registered accelerated growth”.
Bankers attributed improved quality of the credit bureau as one of the reasons for them to aggresively grow the credit card portfolio, despite it being unsecured in nature. “The one factor that has changed the whole approach of banks in unsecured lending and credit cards in the past one year is the ability to underwrite a customer far more intelligently than ever before,” said a banker in charge of a foreign bank’s credit cards division. “The main reason behind this is an improvement in the quality of the country’s credit bureaux,” he noted. Earlier, the official noted, a lot of people got over-leveraged. “Banks did not know how many loans a customer had — secured or unsecured. So, there is a rough period during which all of us learnt a lesson,” he added.
Of late, over-leveraging has stopped owing to credit bureau information, he said. “But banks are not going for unbridled expansion. The growth is measured and researched without compromising the credit quality.”
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Home loan growth also envisaged a steady trend, by registering a 14 per cent growth on year-on-year basis as compared to 12.4 per cent during the same period of the previous year. However, during the current financial year, home loan growth slightly moderated to 6.9 per cent from 7.9 per cent year ago. Banks’ home loan portfolio stood at Rs 369,935 crore as on October 21 as compared to Rs 346,110 crore on March 25.
Credit growth to NBFCs also remained strong. It registered a 41.5 per cent growth on a y-o-y basis this October, when it stood at Rs 184455 crore. That is significantly higher than a 26.1 per cent growth in the previous year.
Recently, RBI had raised a red flag on banks’ increasing exposure to sectors like real estate, infrastructure, NBFCs and retail segment due to increase in asset liability mismatches. Credit to the commercial real estate (CRE) sector increased by 12.8 per cent (y-o-y) in October, lower than 17.6 per cent in the previous year. In the trend and progress report on banks for 2010-11 released earlier this month, RBI had spoken about its “emerging concerns” regarding the banking sector’s stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, NBFCs and retail segment, persistent asset-liability mismatches, higher provisioning requirement and reliance on short-term borrowings to fund asset growth.
Banks’ loans to commercial real estate saw a decline in growth trend during April-October, which grew by 4.9 per cent as compared to 12.8 per cent. Bank loans to this sector stood at Rs 117,267 crore as on October 21.