Credit to feed spending boom

Personal loan market to grow 60% a year

An ICICI Bank study projects the retail spending to touch Rs 21,00,000 crore in 2010.

The study projects that the retail spending will climb to Rs 21,00,000 crore in 2010 from Rs 13,00,000 crore currently even as the personal loan market will grow at 60 per cent per year to touch Rs 50,000 crore in 2010 from the current level of Rs 6,000 crore.

"The increase in consumer spending is likely to be steep with a huge number of new consumers entering the market. And the frequency at which already affluent consumers buy will also go up," says B Narayanaswamy, executive director, Indica Research.

The boom is being fuelled by cheaper and easier availability of personal credit, the study says, adding that the average loan size has been increasing 15 per cent annually since 2000.

"In the last two years, easier availability of credit has meant an incremental consumer spending of Rs 1,20,000 crore, which represents a 10 per cent growth," says KSA Technopak Chairman Arvind Singhal.

According to KSA Technopak estimates, nearly 12 per cent of the urban socio-economic category A and B households paid equated monthly installments in 2003 of which 45 per cent had availed of home loans.

ICICI Bank has estimated the average loan size in a metro to be Rs 1,45,000. "Even if a conservative estimate of 15 per cent growth is factored into this, which could be spent on retail segments like jewellery and furniture, it translates into Rs 900 crore of additional consumer spending in 2004," says V Vaidyanathan, senior general manager (retail banking), ICICI Bank.

Nearly 40 per cent of the personal loan offtake is accounted for by consumers in the age group of 30-40.

Thanks to the proliferation of business process outsourcing and service sector jobs, the number of families with multiple incomes in urban India has gone up.

"Fixed household expenditure has remained constant, whereas disposable income has suddenly doubled or tripled," says Singhal.

"Consumer aspirations in metros and smaller cities are evening out. Due to the lower cost of living, those in the smaller cities end up with higher discretionary spending," adds Singhal.

But the question is: are Indian marketers geared to ride the boom?

"Yes, supply will follow demand. But companies have to be more aware and speed up distribution. They should also understand the value proposition that the consumer seeks," says Narayanaswamy.

"Two-wheeler, mobile phone and consumer durables companies have responded quickly to the changing spending patterns of consumers. Those who have missed the mark so far are organised textile companies and large branded FMCG products," says Singhal.