Recovery hopes have reached lenders, but not borrowers yet

Encouraged by the festive beginning of recovery, India’s bankers are showing confidence that their assets would grow as more Indians come back to borrowing.

The country’s largest lender State Bank of India Ltd (SBI) wants to accelerate retail loan growth in the coming quarters. Private lender ICICI Bank Ltd told analysts last week that its focus would be on retail loan growth. HDFC Bank Ltd has been highlighting the swift revival in retail loan disbursals.

What bankers need to see is whether their optimism is shared by potential borrowers. A look at the Reserve Bank of India’s (RBI) consumer confidence survey shows that a straightforward and steady recovery in retail lending would be tough. The survey showed that Indians are still pessimistic about prospects of the economy, though less than before.

No cheer yet

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No cheer yet

But what is important for banks is the perception of income, employment and spending. More Indians expected jobs prospects to worsen in the November survey compared with the September round. The expectation about incomes is even less sanguine. To be sure, Indians foresee themselves spending more one year ahead, but a higher proportion of them want to avoid discretionary spending.

The fact that jobs and income prospects are still not inspiring optimism should tell banks that getting retail borrowers would be challenging. Even though Indians may increase spending, much of this is likely to come from dipping into savings rather than borrowing to spend. Also, with no quick revival in discretionary spending, unsecured loans may not show a sharp growth.

Indeed, as of October, unsecured personal loans showed just 14% year-on-year growth compared with 20% pre-covid. Credit card outstanding showed a single-digit growth. Moreover, even the most secured home loans are growing at their weakest pace. “Home loans which have a large share in retail credit registered a growth of 8.2% in October 2020 (lowest in last five years), which indicates though banks are offering various festive offers on home loans, individuals are not taking fresh loans,” wrote Care Ratings Ltd.

Retail lending has picked up pace for many banks, but there are concerns that beyond the initial festival boost, the growth may not sustain. These concerns look more convincing in the light of RBI’s survey.

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