Retail loan demand drying up

Banks are witnessing a sharp drop in applications for retail loans following the steep rise in interest rates over the last few months.

Senior bankers said there had been about 25-30 per cent fall in the number of applications received for retail loans, particularly home loans and personal loans.

Any discernible drop in disbursements has not yet been felt as banks still have huge books of sanctions and applications under process.

A private bank official said, "the scare of higher interest rates appears to be slowly sinking in. It is becoming visible that retail borrowers are shying away from huge personal loans and also reconsidering any home purchase plans."

The retraction from retail borrowers became evident since the middle of June 2006, when banks further tightened their lending rates following a reverse repo rate hike by the Reserve Bank of India (RBI) on June 8.

ICICI Securities had in a report in June stated that UTI Bank had seen a 15-20 per cent drop in applications for retail loans and the bank was also witness to the runaway rise in real estate prices generating "some buyer resistance to closing deals."

The report said it had factored in a slowdown in UTI Bank's loan growth to 33.2 per cent in 2006-07 from 43 per cent in 2005-06.