Fresh loans sanctioned by banks and financial institutions towards long-term infrastructure projects in FY18 was at 2.4% of the total loans sanctioned, which was muted compared to the sanctions of 2.7% in FY17, according to the Reserve Bank of India s release on project loan sanctions.
However, total sanctions in FY18 dropped 54% year-on-year, indicating that the near-term loan growth prospect still remains weak.
Analysts at Kotak Institutional Equities believe around 55% of the total loans sanctioned in FY18 is still dominated by infrastructure, but the share of loan towards infrastructure has declined from 65% in FY16 and 70% in FY17 led by a drop in power sector sanctions.
Corporate lending seemed muted at 35% of total loans disbursed in the sector as most banks continue to reduce exposure to stressed sectors.
Most companies are focusing on reducing leverage levels through multiple options than looking at fresh capital expenditure. We expect muted loan growth in the medium term, said analysts. Following the slowdown in corporate lending, retail loans have been gaining share.
The share of retail loans grew to 26% in January 2019 from 19% in FY14, according to the report.
We expect retail loans to grow at 16% CAGR over FY19 to FY22 and their contribution to overall loans to increase to 28% of total loans, said analysts.
Amid the retail loan portfolio, credit cards or unsecured loans will see the fastest growth at 30% CAGR in the retail portfolio, although its contribution from a size perspective would still be negligible at 5% against 3.5% currently, said analysts.
While the size is insignificant, we are still bullish about this space, considering it is expected to be a far more profitable portfolio than other products.