The total retail loans in India recorded a compound annual growth rate (CAGR) of 17.5% during 2014-18 to reach INR22.2 trillion (US$319.1bn) in 2018. However, weakening economic growth and slowdown in auto sales are expected to impact the growth over the next four years and as a result the total loans are projected to reach INR39.4 trillion (US$566.7bn) in 2023, says GlobalData, a leading data and analytics company.
According to GlobalData’s latest report, ‘India Retail Banking: Opportunities and Risks to 2023’, home loans accounted for the largest share with 52.2% of total balances in 2018, followed by personal and auto loans at 43.8% while credit cards accounted for the remaining 4%.
Ravi Sharma, Banking and Payments Lead Analyst at GlobalData, comments: “Affordable house prices and increase in supply of residential property have contributed to strong growth in mortgage loan. Additionally, government reforms such as implementation of Real Estate (Regulation & Development) Act, 2016 and Benami Properties (Prevention) Act – along with favorable policies like reduction of goods and services tax for homes purchased under the Credit Linked Subsidy Scheme – helped growth in mortgage loans.”
Although personal and auto loans have grown at a robust pace, a dip in growth rate was seen in 2018, mainly due to slump in motor finance market. The ongoing liquidity crisis of NBFCs affected auto sector, with sales declining across segments including passenger vehicles, tractors, and two- and three-wheelers. As a result, vehicle sales fell by 8% in the FY 2018.
Credit card loan was the fastest-growing segment mainly due to the rise in credit card usage and thriving e-commerce sales. E-commerce companies are partnering with banks to offer additional discounts and cashback on EMI purchases using credit cards, helping drive its growth.
With increase in loans, banks, especially mid-sized ones, are focusing on reducing impairment to remain profitable against a backdrop of weak recovery prospects. This is seen in case of state-owned banks such as Union Bank of India and Canara Bank, which registered a decline in net impairment ratio in FY2018 (ending March 2019). However, it’s still very high with compared to their private counterparts. For instance in FY2018, Union Bank of India and Canara Bank had net impairment ratios of 6.5% and 5.7%, respectively, compared to 2.1% of HDFC Bank and 0.8% of Axis Bank.
Sharma concludes: “Growing unemployment, economic weakness and recent fall in consumer confidence is causing households to cut back on borrowing. This is expected to persist in the near term, resulting in lower growth in retail loan over the next four years.”