Rising NPAs have forced lenders to focus on smaller retail loans
Banks have aggressively grown their loan advances through credit cards, vehicle loans, personal loans and agriculture, while sharply cutting down loans to industry.
Rising non-performing assets (NPAs) have made lenders risk-averse, forcing them to concentrate on smaller retail loans, rather than chunky advances to a single corporate account. According to latest data by the Reserve Bank of India (RBI), the year-to-date bank credit growth (April to October 19) is just 2.7 per cent, while in the corresponding period last year, it was over 5 per cent.
Outstanding bank credit to industry stands at Rs 20,13,400 crore at the end of September, growing at the rate of 15.6 per cent over the previous year, while the year-on-year growth in the corresponding period last year was 22.9 per cent. The worst impacted are roads, infrastructure and the textile sectors.
Credit card advances grew fastest by 21.9 per cent over the previous year to Rs 23,000 crore, while the year-on-year growth in the corresponding quarter last year was just 2.2 per cent.
For over the past four quarters, banks have been focusing on retail loan growth with reduction in interest rates, processing fees and other promotional schemes. So, while banks are turning risk-averse on industrial credit, they are also trying to grow their NIM (net interest premiums) by growing unsecured loan book.
There is also a spurt in the growth of vehicle loans with total outstanding at Rs 1,02,700 crore, growing at the rate of 22.2 per cent over the previous year, up from 19.3 per cent growth recorded last year. Most banks are sitting on excess liquidity which is being deployed into government securities rather than on loan assets.
RBI governor D Subbarao in an interview with Financial Chronicle on Tuesday, said, “We expect credit to flow to all productive sectors like infrastructure, agriculture and SME sectors.” A senior SBI official said, “We are selectively lending by putting most of the excess liquidity of close to Rs 70,000 crore into government securities or other options with very selective lending.”
Agriculture credit has gone up by 21.3 per cent at the end of September over the previous year, while the year-on-year growth in the corresponding quarter rose by 7.9 per cent over the preceding year. The outstanding personal loans rose by 16.6 per cent over the previous year to Rs 15,122.6 crore. In the same time last year, the year-on-year growth for personal loans was just 12.2 per cent.
Chanda Kochhar, CEO and MD, ICICI Bank, said in a media concall last week, “Working capital loans and retail credit growth will be the mainstay of credit for the bank in the coming quarters until investments begin into projects.” About half of the Rs 6,670 crore of incremental credit growth reported in the second quarter came from retail loans.
In the industrial segments, one of the worst hit is the road sector where the pace of growth of bank credit is just 19.1 per cent, down from 31.9 per cent last year. With many infrastructure projects held up due to of various approvals, the pace of growth in infrastructure advances have slowed to 15.1 per cent over the previous year to Rs 6,50,100 crore, down from 20.3 per cent last year.
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