Post demonetisation, Indians may have found their love for personal loans

The Reserve Bank of India (RBI) has released the performance of gross bank credit growth for the first month of the financial year 2017 -18 (FY18). As expected, gross bank credit stood at Rs 65,93,500 crore in April rising by just 4.3% compared to Rs 63,22,600 crore in the corresponding period of the previous year.

In percentage terms, this growth is nearly half of what was recorded in April 2016 – where gross bank credit growth was at 8.6% as against the same month of last year. 

On month-on-month basis, this has declined by 3.5% from Rs 68,35,200 crore in the March 2017. 

However, an interesting trend to note is the growth in personal loans. 

Personal loans disbursement stood at Rs 15,37,500 crore in April, growing by 14.8% year-on-year basis. 

Also Read: Cheaper interest rates fail to spur home loans demand

Credit from personal loan indicators like consumer durables (Rs 17,100 crore), housing loans (Rs 8,16,000 crore, credit card outstanding (Rs 54,100 crore) and vehicle loans (Rs 1,64,500 crore) recorded yoy growth of 21.1%, 18%, 31.2% and 20.1% respectively. 

Simply put, within personal loans, credit cards saw highest growth of over 31% in the given month. 

In FY17, banks/ outstanding credit growth reached at Rs 78.81 lakh crore compared Rs 75.01 lakh crore as of April 2016. Thus, credit growth in 2017 stood at 5.08% lowest since 1953-54 when it had inched up by a paltry 1.7%.  

Slowdown in the credit growth has been led by banks' stressed and bad loans, stagnant corporate investment environment and some migration to the corporate debt market where interest rates were more elastic to policy rate changes. 

Shashin Upadhyay, analyst at ICICI Securities said, "With relative improvement in the macro-economy, we estimate systemic loan growth rate to rise to 10% YoY in FY18."

Also Read: Bank credit growth will inch up this year but will still remain weak

He believes three things will aid the performance of loan growth in FY18. 

First, waning credit substitution as banks effectively price as per the MCLR curve; second, continued growth momentum in retail, aided by declining product rates and a modicum of revival in corporate credit on higher inflationary expectations and lastly, improved utilisation of industrial capacity.

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He said, "We expect retail credit demand to be driven by home loans, given the increased affordability on falling product rates, favourable demographic drivers (nuclear families, internal migration) and government incentivisation (upfront interest subvention in affordable housing)."