Banks are gearing up for an uptick in business during the festive season but with caution, given the regulatory concern on unsecured loans, pressure on liabilities, and emerging stress in the retail segment.
Unlike in recent years when retail loan growth was upwards of mid-teens, bankers have indicated the pickup in business will be 10-12 per cent.
While major state-owned banks have started promoting their schemes, private banks have yet to announce their offers.
Further, Union Bank of India is offering interest rates starting at 8.35 per cent for home loans (based on CIBIL scores), without any limit on the amount of the loan. Additionally, it is offering a waiver of legal and valuation charges up to Rs 10,000 to take over home loans from other financial institutions, and zero processing charges.
Pune-based Bank of Maharashtra is also offering home loans starting at 8.35 per cent along with zero processing fees.
The approach to retail will be cautious this season, said a senior official at SBI.
The bank would not be aggressive in personal loans even though “our exposure is predominantly to the salaried class, that too working in government and public-sector establishments, due to the regulatory concerns”, he said.
“It is back to normal pre-Covid days. The phase of pentup demand post-Covid is over. Lending growth in the retail segment covering housing, consumer, and personal and auto loans will be 15-16 per cent year-on-year,” the executive added.
During the festive season, which starts in September every year, banks see a major jump in business in the retail segment — housing loans, vehicle loans, personal loans, etc. In the last two years, the jump in business was substantial because of the post-pandemic demand shooting up.
According to the Reserve Bank of India (RBI) data, retail credit expanded by an average of more than 13 per cent during September-December 2021; around 20 per cent during the same three-month period of 2022; and over 18 per cent during September-December of 2023.
Flagging this high growth in certain components of consumer credit, the RBI in November last year increased the risk weightings for consumer credit, including personal loans but excluding home loans, education loans, vehicle loans, and gold loans, by 25 basis points to 125 per cent.
This move led to a majority of banks calibrating growth in their unsecured portfolios.
Senior executives at other public-sector banks have also indicated demand during the festive season is expected to be normal rather than substantial. Growth would not be 20-25 per cent but 10-11 per cent, they said, adding that the impact of the surge in discretionary spending had happened in the past two years. And, in the current festive season banks will be careful as delinquencies have started to rise in personal loans.
Commenting on the uptick in demand, M V Rao, managing director and chief executive officer, Central Bank of India, said the leads coming from the branch network were robust.
Meanwhile, banks are facing pressure on liabilities. Lenders are scrambling for deposits due to sluggish growth in this segment. Deposits have been lagging behind credit growth for some time. Banks have already increased interest rates on fixed deposits to the extent they could and now are no longer looking to play the rate war as any further increase in interest rates on deposits would lead to margin compression.
The latest RBI data shows the gap between credit and deposit growth is around 300 basis points. This has prompted the regulator to instruct banks to innovate on products on deposits and make better use of branches to mobilise funds. The liabilities pressure could also result in banks focusing more on mobilising deposits this festive season.
Among private banks, HDFC Bank had indicated it was gearing up for a surge in business this season, and was anticipating a significant share of incremental deposits on liabilities, loan disbursement, and spending on the credit card.
– This year, lenders are expecting growth in early to mid teens
– Regulator’s action on unsecured retail segment has prompted caution among lenders this festival season
– Adding to their woes is the liabilities side issues, and emerging stress in the retail segment
First Published: Sep 12 2024 | 8:46 PM IST