Festive Season to Boost Retail Credit Growth
Indian banks and finance companies are anticipating a strong uptick in retail credit during the upcoming festive season from September to December 2023. This optimism stems from robust demand, government initiatives, and elections in key states. However, the potential for interest rate battles is constrained due to the Reserve Bank of India”s (RBI) control over liquidity. Concerns about potential impacts on margins and credit quality are also curbing competitive rate slashing among bankers.
Between August and December 2022, amid economic recovery and pent-up demand following the second pandemic wave, retail credit from banks saw year-on-year growth ranging from 19.5% to 20.2%. In the current year up until June 2023, overall retail loans have expanded by about 21% year-on-year. Housing loans, credit card loans, and vehicle loans have grown by 15%, 36%, and 23% respectively, as per RBI data.
Suresh Khatanhar, Deputy Managing Director of Retail Banking at IDBI Bank, predicts that competition among players will centre on turnaround time and attractive customer schemes, rather than aggressive rate cuts. Partnerships between retailers and consumer goods companies will play a key role, along with the introduction of festival season offers.
Union Bank of India, based in Mumbai, has announced the waiver of processing charges for home and vehicle loans for new customers with a credit score of 700 and above. This offer is valid from mid-August to November 15, 2023.
The RBI”s lending survey, released in conjunction with the August monetary policy review, reveals that bankers are optimistic about loan demand in the third and fourth quarters of the fiscal year 2023-24, covering various categories of borrowers. Favourable loan terms are expected to continue in the latter half of the fiscal year.
A senior executive from the State Bank of India (SBI) noted that demand remains strong for retail loans due to a resilient economy. Additionally, elections for Vidhan Sabha in states like Madhya Pradesh, Rajasthan, Chhattisgarh, and Telangana could result in increased giveaways and higher spending.
Renewed efforts by the Union finance ministry to hold loan camps in rural areas are contributing to this push. Consequently, public sector banks are expected to make extra efforts to increase credit uptake among small borrowers.
Despite the drive for growth, lenders are cautious not to compromise their healthy credit profiles achieved through stringent underwriting, provisioning, and the use of artificial intelligence to leverage data from social media, as explained by an executive from a finance company.
