Informist, Tuesday, Oct. 22, 2024

NEW DELHI – Slowing retail loan growth in India is a credit positive, Moody's Ratings said Tuesday, although it warned it was seeing signs of stress in the portfolio of lenders. The rating agency said the demand for consumer loans will continue due to India's "robust economic growth" despite the measures taken by the Reserve Bank of India to dampen the boom.

"Rapid growth in retail loans in recent years has raised asset risks for lenders, and delinquencies will increase in the next two to three years when loan growth slows and loans mature," Moody's said in a report Tuesday. While the retail loans are doing well "for now", there are signs that the quality of these loans is beginning to deteriorate, it said.

"Retail loans, excluding housing loans, accounted for 40% of new bad loans at private sector banks in the fiscal 2024, according to the RBI. At the same time, the ratios of non-performing retail loans to total retail loans increased modestly as of the end of June 2024 from three months earlier at most large banks," the rating agency said.

After seeing a sharp increase in consumer loans, particularly of the unsecured variety, the RBI late last year took steps to clamp down on them, ordering 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. However, Moody's sees demand for personal loans continuing thanks to India's rapid economic growth, which it said is translating into higher employment and wages and improvement in consumer confidence.

"At the same time, digitalisation of financial services amid an acceleration of smartphone and internet penetration is making it easier for retail borrowers to gain access to credit. The proportion of loans disbursed through digital channels in total personal and consumer loans in India will increase to 37% in 2030 from 12% in 2022, according to Google, Temasek and Bain & Company," Moody's said.

While the rating agency sees asset quality worsening for retail loans over the next couple of years, it expects the non-performing asset ratios to be lower than pre-pandemic levels for both banks and non-banking financial companies. End

Reported by Siddharth Upasani

Edited by Saji George Titus

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.