A customer pays for an order with a credit card at a food joint (Photographer: Susana Gonzalez/Bloomberg)

Growth In Credit Cards, Unsecured Loans Holds Strong For A Fourth Year Running

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Unsecured loans and amounts outstanding on credit cards continued to lead growth in bank credit in an otherwise subdued year. Growth in lending to these segments has remained well above overall bank credit growth for the last four years now, prompting regulators to urge caution.

Credit card outstanding amount rose by 31.6 percent in the 12 months to March 2018, according to latest data released by the Reserve Bank of India on Friday. Lending in the ‘other personal loans’ category, which consists mostly of unsecured loans, rose 35 percent.

Overall bank credit grew by a moderate 8.4 percent. While credit to industry grew a mere 0.7 percent, retail credit (classified as all personal loans by the RBI) saw an increase of 17.8 percent. Retail credit now makes up a quarter of the total non-food credit.

This trend could continue, pushing up the share of retail loans across the industry. Retail loans are expected to grow at a compounded annual growth rate of 16 percent in the financial year 2018-22 period, said a Kotak Institutional Equities report released earlier in April. This would push up the contribution of retail loans to 28 percent of total loans compared to 18 percent in financial year 2013-14, the report added.

While banks are so far seeing steady asset quality trends in this segment, regulators have been advising caution. The “herd mentality” to grow retail loans could lead to risks down the line, said RBI Deputy Governor NS Vishwanathan in a speech on April 18.

There appears to be taking hold a herd movement among bankers to grow retail credit and the personal loan segment. This is not a risk-free segment and banks should not see it as the grand panacea for their problem riddled corporate loan book. There are risks here too that should be properly assessed, priced and mitigated.
NS Vishwanathan, Deputy Governor, RBI

Credit Growth To Industry Positive But Weak

Credit to industry continues to make up the highest share of loans given out. But growth in this segment remains weak. Credit disbursed to large, medium, micro and small industries saw a growth of 0.7 percent for the year ended March 2018 after declining by 1.9 percent in the previous year.

Medium-sized companies continued to bear the brunt of the slowdown in industrial credit. Credit to this set of companies declined by 1.1 percent in the last financial year, compared to a near nine percent decline in 2016-17. Credit to large corporations grew 0.8 percent, following a decline of 1.7 percent in the previous year.

Within the industrial sector, credit to sub-sectors like mining and quarrying, food processing and textiles saw accelerated growth.

Loan Waivers Lead To Weak Growth In Agricultural Credit

Agricultural credit grew at its slowest pace since financial year 2011, showed the RBI data. Credit to agriculture grew at just 3.8 percent in 2017-18, compared to 12.4 percent in the previous year.

Farm loan waivers announced by a few states led to a fall in the outstanding loan amount to the agriculture sector, according to a senior banker who requested anonymity. When a state announces a loan waiver, it compensates banks for the amount of the waiver. Since most of the waivers came against standard accounts, the credit outstanding to agriculture has shown a drop, explained this banker.

States, including Uttar Pradesh, Punjab, Rajasthan and Maharashtra, have announced loan waivers over the last 12 months.

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