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ICICI Bank Bets On Continued Strength In Retail Lending

Retail loans to double to Rs 96 lakh crore in five years: ICICI Bank/CRISIL study

A man talking on a mobile phone walks past signage for ICICI Bank Ltd. at the Bandra Kurla Complex in Mumbai. Photographer: Dhiraj Singh/Bloomberg
A man talking on a mobile phone walks past signage for ICICI Bank Ltd. at the Bandra Kurla Complex in Mumbai. Photographer: Dhiraj Singh/Bloomberg

A joint study conducted by ICICI Bank Ltd. and rating agency CRISIL Ltd. has estimated that retail loans will double to Rs 96 lakh crore by March 2024. All categories of retail loans, especially unsecured segments such as personal loans, credit cards and consumer durable loans will continue to grow despite the current bout of skepticism, the study claims.

According to the joint report, if the Indian economy grows at 6.5-7 percent in each of the next five years, retail lending will continue to grow at a pace higher than the overall credit growth. Newer sources of data will add to the safety of lending, while increased competition will bring lower costs for customers, the report said.

Home loan products will remain India’s largest retail loan category, with outstanding loans rising to Rs 25.4 lakh crore by March 2024, from Rs 13 lakh crore in March 2019, it said. Unsecured personal loans will more than double from around Rs 4 lakh crore to Rs 10.5 lakh crore in the same period.

Other retail loan products like vehicle finance, gold loans and education loans will grow at an annualised rate of 14-15 percent.

Anup Bagchi, executive director at ICICI Bank, said that Indian borrowers are no longer shying away from debt like they once did.

“What we’re seeing is that Indian borrowers are less shy about taking credit now,” Bagchi said. “Moreover, as lenders we have access to far more data about a customer than what we did even five years ago. ICICI Bank has mostly been giving unsecured loans to its own customers, which provides further room for us to grow this book.”

Banks can continue to push for higher retail loan growth through unsecured loans because of the demographics of the new-to-credit customer base. A newly employed salaried bank customer will be more comfortable starting off with a small unsecured loan, than a large collateralised loan, he said.

As on Sept. 30, ICICI Bank’s outstanding retail loan book constituted 62 percent of total advances. The bank has been pushing growth in its retail lending business over the last few years due to rising stress in its corporate lending portfolio. It has shuttered its dedicated project finance division last month, shifting the business to its broader corporate lending vertical. The focus will be on growing granular retail loans, the bank has said in the past.

Asset Quality Risks?

While the study skips mounting concerns about asset quality risks that may emerge from increased retail lending, a number of analysts have raised red flags.

According to a Moody’s research report released on Monday, private banks will likely see their asset quality metrics worsening as they are more exposed to high yielding non-salaries housing loans, loans against property, personal loans and credit card loans. Loans against property are already witnessing a rise in default rates, Moody’s noted in its report.

India’s oldest credit information company, TransUnion CIBIL, has also highlighted the increasing reliance of lenders on lending to below prime-customers to grow unsecured retail loans.

“There’s a shift in originations towards high-risk tiers with 44.8 percent of total originations in Q2 2019 to borrowers in below prime segment (sub-prime and near-prime) compared to 36.4 percent in Q2 2018,” TransUnion CIBIL was quoted as saying in a dated Oct. 30. “Almost 50 percent of NBFC (non-banking finance companies) originations in Q2 2019 were to borrowers in below-prime segments.”