Is Strong Retail Credit Growth A Myth, Asks Crisil
While consumer spending has slowed, growth in retail borrowings has remained robust. Crisil’s Quicknomics research has an answer.
While consumer spending has slowed, growth in retail borrowings has remained robust. How is that?
The question was raised by ratings agency Crisil Ltd., in its ‘Quicknomics’ research on Tuesday. Crisil economists Dharmakirti Joshi and Dipti Deshpande have an answer too, but first the data.
Private consumption grew 4.1 percent in the first half of the financial year—less than half of the 8.5 percent growth last year. Other indicators, too, have been suggesting consumers have turned wary of spending.
But another set of data suggests that consumers are still borrowing.
Bank credit data shows that in the first half of the financial year, retail credit of banks grew 16.6 percent, or twice the speed of overall bank credit growth, said Crisil. This pace of growth was comparable with the average growth of the past three years.
But if consumers aren’t spending, then why are they borrowing?
The answer, Joshi and Deshpande write, lies in the securitisation of loan pools and how they are accounted for by banks.
“Of the incremental retail loans disbursed by banks, a chunk was to buy ‘pools’ of loan receivables of non-banks,” they write. Securitisation transactions involving retail loan receivables get classified as retail bank credit.
The growth in lending after deducting these securitisation flows shows a fall from 16 percent in fiscal 2018 to around 12 percent in 2019 and first half of this fiscal.Dharmakirti Joshi, Chief Economist And Dipti Deshpande, Senior Economist, Crisil
As non-bank lenders struggled to raise liquidity in a risk-averse market, the retail securitisation volume doubled last fiscal and has remained strong this year.
Lending for securitisation rose to 31 percent of incremental bank credit last fiscal, compared with 17 percent in 2017 and 11 percent in 2015. In the first half of this fiscal, that number climbed to 37 percent, Crisil said.
While about half of the securitisation transactions was home-loan receivables, a quarter was vehicle-loan receivables and a little over a tenth was made up of microfinance-loan receivables.
When analysed after excluding securitisation, bank credit growth data is more in sync with other indicators such as falling sales of automobiles, consumer durables and homes, Crisil said.