Retail and industrial lending neck and neck for the first time, RBI data shows
Besides the decline in bank lending to the corporate sector, the growth in personal loans can also be attributed to improved credit ratings, better availability of personal data and digital reach.
“The increase in personal loans is mainly due to the infrastructure created over the past decade which has given banks the confidence to develop secured and unsecured personal loans,” said Rajiv Anand, executive director of ‘Axis Bank Ltd. There has also been a change in behavior among customers who have become more open to taking credit than before.
Factors contributing to growth, he said, include easy availability of transactions and individuals’ credit history, faster authentication through Aadhaar and PAN cards, better credit scoring with help from bureaus credit and instant loan disbursement via digital means.
“All of these factors have led banks to develop very strong underwriting capabilities for the retail segment, especially for personal loans which are also cleared immediately for some borrowers,” Anand said.
But the rapid growth of the retail segment may not be a sign of good times for banks that have already burned their fingers lending to the corporate segment.
“Even within retail lending, there is fierce competition among lenders for a higher market share and if banks do not remain cautious in their underwriting practices there could be an increase in lenders. bad debts even in this segment, ”Diwanji said.
In January, soured retail debt represented about 30-40% of total loans listed in fiscal year 2020-21. In total, banks and other lenders put up for sale between Rs 15,000 and 20,000 crore during the year, of which nearly Rs 6,000 crore was retail bad debt. In addition, a Dec. 8 report from Macquarie Research said retail nonperforming assets could reach a 10-year high of 4% in the coming quarters. As of March 31, 2020, the system-wide retail NPA ratio stood at around 2%, lower than the 3.9% reported in March 2009, just after the global financial crisis.