Your credit card, personal loans are helping banks grow

At a time when the corporates are defaulting on loans and demand is weak, banks are making merry on your credit cards and personal loans with over 30 percent growth in the past one year.

Though the two unsecured portfolios have a smaller pie with about 30 percent in the share of retail loans, which is nearly 25 percent of the total loans in the industry, the pace of growth is substantial.

Banks witnessed a robust growth of over 30 percent each in both the segments, while the loans to businesses and services continued to shrink in the first four months of FY18.

On the contrary, overall bank credit growth during the current fiscal (as on August 18) continued to be at a historic low with banks’ loan book shrinking by Rs 1.37 lakh crore to Rs 77.04 lakh crore.

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While some have been sceptical about the aggressive growth in the unsecured retail loans which could pose risks similar to the 2008-09 crisis, bankers are optimistic that there is demand and the risks are hedged with more data and information on customers and hence are good quality loans.

“There is demand and hence it is growing. We provide unsecured loans predominantly to our existing customers. Serving existing customer base within our large franchise, we are comfortable with our growth. Ultimately one has to evaluate the risks in these products and whether we are adequately compensated for it. We find the risk reward favourable,” said Rajiv Anand, Executive Director (Retail), Axis Bank.

Although new age banks such as IndusInd BankYes Bank and RBL Bank are also pushing growth in these segments, Anand believes large banks will only get larger.

As per the Reserve Bank of India (RBI) data, the amount outstanding on credit cards jumped 32.5 percent over last year to Rs 56,800 crore as on July end, while the growth since April has been 9 percent by Rs 4,643 crore.

Similarly, personal loans have seen a growth of 35.7 percent since July last year to Rs 422,352 crore and a 12.5 percent jump since April this year.

While home and vehicle loans grew by 10.5 percent and 9.6 percent, respectively since July last year. In the first four months since April, the growth has been almost negligible at 0.4 percent and 1.2 percent for home and vehicle loans.

Vehicle or auto loans increased by Rs 2,000 crore (1.2 percent) to Rs 172,600 crore in the first four months of FY18 up to July. During the same period, home loan growth slowed down to 0.4 percent with the housing portfolio of banks increasing by a mere Rs 3,600 crore to Rs 8.64 lakh crore.

“While personal and credit card loans are growing, we have also grown geographies and we have a high proportion offering to our existing customers. So, yes the personal and credit card segment growing slightly higher than the other retail products,” Paresh Sukthankar, Deputy Managing Director of HDFC Bank had said in the post first quarter results conference call in July.

In the last one year, banks engaged in diversifying their credit portfolios, reducing their exposure from large industries and shifting towards the relatively less stressed categories of housing, personal loans and services.

The Reserve Bank of India data also shows that the usage of credit cards and personal loans has increased with attractive offerings and waiver of processing fees at most large banks.

During 2016-17, belying the general trend, personal loans continued to grow at a healthy rate, although the growth was somewhat lower (16.4 percent vis-a- vis 19.4 percent in the previous year), the central bank’s annual report said.

Further, 1.1 billion transactions valued at around Rs 3.3 lakh crore were carried out through credit cards, according to the central bank’s annual report. This number was at 786 million transactions valued at around Rs 2.4 lakh crore were carried out through credit cards during 2015-16.

So, while banks are cringing on the tepid demand for corporate loans, for now, it is the retail unsecured loans which are providing the much-needed growth security to them.

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