Credit Cards Bang Home Loan Growth: Bank lending to businesses and services continued to contract in the first four months of fiscal 2018, with most incremental lending coming from credit cards and personal loans. The overall growth in bank loans during the current fiscal year (as of 18th August) remained at an all-time low, with bank loan portfolios shrinking by Rs 1.37 billion to Rs 77.04 billion.
Data released by the Reserve Bank of India (RBI) showed that outstanding credit cards rose from Rs 4,600 crore (9%) to Rs 56,800 crore and car loans from Rs 2,000 crore (1.2%) to Rs 1.72. 600 crore up four months from FY18 to July. During the same period, home loan growth slowed to 0.4%, with banks’ home portfolios increasing by just Rs 3,600 crore to Rs 8.64 billion.
The slowdown in home loans is due to the slump in real estate combined with SBI’s merger with related banks, which caused branches to become sluggish in disbursing personal loans as the bank focused on streamlining its branch network.
Total bank credit of Rs 1.95 lakh crore during the period. The largest decline was in loans to non-bank financial firms. Banks’ loan portfolio for corporate financing shrank by Rs 53,500 crore to Rs 3,37,500 crore. One reason for this could be that several microfinance companies were transformed into small financial banks during the period.
According to SBI Chief Economist Soumya Kanti Ghosh, the slowdown in credit growth also underscores the role of supply-side factors – tight assets and capital constraints – in preventing a recovery in the credit cycle. “Industry data on credit flow suggests that the slowdown in credit, while broad-based, is marked by a sharp drop in exposure to the sector,” Ghosh said. “The ‘Other’ personal lending segment has been growing, suggesting consumers are borrowing against their assets (insurance, PPF, pensions, etc.).” Within the industrials segment, lending to the iron and steel sector has increased, but so has everyone else declined This is a good sign and indicates that steel sector strains may be less than they were a year ago,” Ghosh said.