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Bank loan growth hit by consumption slowdown

Shritama Bose
Consumption, loan book, loan book growth, passenger vehicles, banking news

A prolonged slowdown in consumption may be playing out, going by the sales of durables, staples, revenues at retailers and the demand for consumer loans. Wholesale despatches of passenger vehicles (PVs) have fallen in virtually every month since July 2018; in the case of two-wheelers, the fall continues since October 2018. In Q4FY19, FMCG firms clocked volumes that were the slowest in many quarters.

The growth in banks' retail loan portfolios has been on a downward trend since November 2018, data from the Reserve Bank of India (RBI) show. At 16.9% year-on-year (y-o-y), the increase in retail loan outstandings in May 2019 was significantly slower than the 18.6% growth recorded in May 2018.

To be sure, there are takers for home loans as seen in the improved growth of 18.7% y-o-y in May 2019 from 15.5% in May 2018. However, the data is somewhat lumpy, reflecting a fall in some months. This is despite the government's push via the Pradhan Mantri Awas Yojana (PMAY) offering interest-rate incentives.

In fact, the disbursements by housing finance companies (HFCs) show a definite slowdown. Analysts at Crisil wrote that the first half of 2018-19 saw stable growth and comfortable access to funding, with AUM growing at an annualised rate of around 21%. "However, the second half brought a reversal of sorts with AUM growth plunging to about 10%," they said.

AUM growth for retail and rural NBFCs moderated to 17% in October-March of FY19 from a 22% CAGR over FY16 to September 2018, according to Nomura. "A large part of the moderation was also due to a sharp slowdown in demand in the economy," analysts said.

Industry executives say the disbursements could have been better had there been a larger supply of homes suitable for young salaried people. SK Hota, MD and CEO, Can Fin Homes, told analysts after the company’s Q3 results that lending to salaried borrowers has slowed down. "You cannot afford a big house because you don’t have a big salary. So, you need supply in the ticket size that people are looking for," Hota said.

Disbursements of vehicle loans are even more subdued, having grown a measly 4.9% y-o-y in April 2019 against a 9.9% growth in April 2018 and in double digits for a few months thereafter.

PK Gupta, MD, retail and digital banking, State Bank of India, admitted to slowing retail loan growth, though he was reluctant to see it as the result of a consumption slowdown. "In retail, we have essentially seen less growth in the auto sector, but we have not seen much of a slowdown in the personal, unsecured loans," Gupta told FE. "We are not seeing a consumption slowdown. We do believe that some of these loans which are being given are leading to higher consumption," he added.

Some other banks are leaning on lending for used-car purchases to make up for the slack in new-car sales. Ravi Narayanan, head-secured assets, ICICI Bank, said that till about two years ago, the volume of used-car sales was smaller than that of new-car sales. That changed in 2018-19, when about 40 lakh units of used cars were sold, compared with new car sales of about 36 lakh units. "The industry growth in new-car sales last year was about 2-3% y-o-y while that for used-car sales was about 15% y-o-y," Narayanan said. "Used-car financing is also growing at the rate of about 15-18%, while new-car financing growth is mirroring new car sales at about 3-4%," he added.