More Stories

Informist, Friday, Oct. 25, 2024

 

--S&P: Retail loans by Indian banks, NBFCs could triple by 2030

--S&P: See Indian household leverage at 34% by FY31 on strong retail lending

 

NEW DELHI - Amid strong credit growth, Indian lenders' retail book could triple in size by 2030, S&P Global Ratings said Friday, although it allayed any fears about household debt rising beyond manageable levels.

 

"Retail loans are rising significantly and our house view is that household leverage will continue to rise and will be about 34% of GDP by 2030. Despite the rise, it is still much smaller than markets like Thailand and Malaysia, where household debt-to-GDP is more than 80%. Of course, India has much smaller per capita GDP as compared to some of these countries, but the leverage in our view will still be manageable at 34%," Deepali Seth-Chhabria, associate director of financial institutions ratings at S&P, said in a webinar. According to her, increased formalisation and more comprehensive digital credit data will provide banks and non-banks opportunities to improve credit underwriting and support credit growth penetration. The ratings agency sees retail loan growth of Indian lenders consistently staying at 15% or higher until 2030-31 (Apr-Mar).

 

S&P's comments come at a time when the Reserve Bank of India is actively looking to clamp down on the robust growth in certain segments of consumer loans. Late last year, the RBI ordered banks to allocate more capital for personal loans, except for a few categories such as housing, education, and vehicles. Non-banks were hit doubly hard, with the central bank raising risk weights on banks' exposure to them--in effect pushing up the shadow lenders' cost of funds--while also increasing the risk weights on non-banks' unsecured loans.

 

The RBI's actions have helped bring down growth in banks' personal loans from 30% in October 2023 to just 14% in August this year. As on Aug. 23, banks' total personal loans stood at INR 55.55 trillion.

 

To be sure, signs of stress in lenders' retail books are rising, with Seth-Chhabria noting that personal loans and credit cards, which now form about 10% of the loan portfolio, are seeing increasing bad loans. "Loan segments, which have high lending rates or marginal borrower profiles, like microfinance, personal loans, credit cards or unsecured business loans, are already showing rise in delinquencies," ratings agency ICRA, the local arm of Moody's Ratings, said Thursday. It expects these largely-unsecured segments "to continue to be a source of stress in the near term, and the spillover to secured asset classes, like micro and small mortgage loans, used vehicles and other small-ticket loans remains a near-term monitorable".

 

RBI GETTING STRICT

Even as it has taken steps to subdue exuberant retail credit growth, the central bank is also increasingly penalising lenders for violating its regulations. Last week, it barred four non-banking financial companies from making fresh loans after it found that their lending rates were excessive and did not adhere to its regulations. Before that, on Sept. 30, it told all lenders to re-examine their gold loan policies after a review unearthed "several irregular practices". It further warned that regulatory non-compliance "will be viewed seriously and will attract, among other things, supervisory action".

 

According to Seth-Chhabria, the RBI's actions are a show of "commitment to strengthen the financial sector". At another webinar, on Thursday, Fitch Ratings' analysts commented the central bank was taking more business-related actions instead of just financial penalties. "The RBI is doing the right thing. Earlier, RBI used to enforce through penalties primarily. But now it's been business stoppages altogether," Siddharth Goel, director of APAC non-bank financial institutions at Fitch, said.

 

"NBFIs (non-banking financial institutions), in general, would now be more receptive towards what the RBI says, what they say in their general discourse. So things in the long term should improve... Yes, there could be near-term disruption for the entity which is involved in the wrong-doing and the consequent action on them. But these actions by RBI in general would provide long-term confidence of better corporate governance of NBFS (non-banking financial services) sector as a whole," Goel added.

 

In addition to the recent actions, the RBI in 2024 effectively ordered Paytm Payments Bank to wind down its operations, banned IIFL Finance from sanctioning or disbursing gold loans or selling any of its gold loans, and stopped Kotak Mahindra Bank from on-boarding new customers through its online and mobile banking channels and issuing fresh credit cards, among other actions.  End

 

Reported by Siddharth Upasani

Edited by Vandana Hingorani

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.