Personal loans prop up credit growth in January

While aggregate non-food credit in January grew 16.7% from a year earlier, retail loans grew by 20.4%, data showed. At 8.7%, growth in corporate loans, though higher than the 5.9% seen between January 2021 and 2022, was below bankers’ hopes, given the government’s capex nudge.

Within the fast-growing retail loan segment, consumption loans, categorized by RBI as “other personal loans”, grew 25.6% in January, compared with the previous year, as more banks pushed quick loans delivered digitally through mobile apps.

These unsecured loans include loans for domestic consumption, medical expenses, travel, marriage and other social ceremonies and loans to repay other debt, among others. As of January, these loans stood at ₹10.5 trillion. If the total credit card outstanding of ₹1.9 trillion is added to the mix, then unsecured retail loans grew by 26.2% overall in January.

“It (total unsecured loans) reported a higher growth compared to the personal loan segment in January 2022 and January 2023 due to the miniaturization of credit, digitalization, and multiple offers given by banks on credit cards,” Care Ratings Ltd said in a note on 3 March. The share of unsecured loans in the personal loan segment rose by 140 basis points (bps) to 31.3% as in January from the previous year, the note said.

Others are also quite bullish on the growth in unsecured retail loans. In a recent presentation on the banking sector outlook for 2023-24, India Ratings and Research pointed out that housing loans and unsecured loans will drive retail credit growth.

The share of unsecured loans in total retail loans has been strengthening since FY16, despite a slight decline in FY22. This seems to be regaining pace in FY23 as well. Unsecured loans stood at 37.1% of retail loans in FY21, 35% in FY22, and 35.5% from April to December of FY23, showed data from India Ratings and Research.

While personal loans—unsecured loans for consumption—have been the forte of private sector banks and a few public sector lenders, more are getting on the bandwagon. India’s second-largest state-owned lender Bank of Baroda, has embarked on a mission to drive growth in this segment. Although coming off a low base, personal loans have nearly tripled to ₹17,230 crore as on 31 December from the same period last year.

“You see that unsecured personal loans now are a very significant proportion of the retail book. Then, it was almost nothing; now it already might be 15% to 20% odd,” Sanjiv Chadha, chief executive of Bank of Baroda, told analysts on 3 February.

Chadha said there is scope for the personal loan book to grow further. He said that the rising share of retail loans, especially those that are unsecured, would boost margins in the coming days.

Meanwhile, bank loans to non-bank financiers rose 31% in January, significantly higher than the 9.9% seen between January 2021 and 2022. According to RBI, this data on NBFCs includes housing finance companies, public financial institutions, microfinance institutions, non-banks engaged in gold loans and others.

According to the Care Ratings note cited above, the growth was driven by a shift of borrowings to the banking system and growth in the business of NBFCs. Loans to NBFCs constituted 57% of fresh credit within the services segment, an increase from 37.9% in the year-ago period, it said.