MUMBAI: The share of personal loans in the books of banks has outgrown credit to large industry over the last 12 months. Home loans are now the single biggest sector in terms of advances, accounting for nearly 15% of bank credit as against infrastructure which has an 11.3% share.
According to data released by the Reserve Bank of India (RBI), bank credit as of end-February stood at Rs 89.8 lakh crore — an increase of only 7.3% over the previous year. Of this, the share of credit to the manufacturing sector is 31%, or Rs 27.9 lakh crore. This is almost unchanged from the end of February 2019 when, because of a much smaller base, industry accounted for a third (33%) of bank credit.
Personal loans on the other hand have grown 17% and stand at Rs 25.3 lakh crore (28% of the loan book) as of end February 2020. Growth in the personal loan segment has been driven by home loans, which also grew 17% year-on-year to Rs 13.3 lakh crore. This surge has increased the share of home loans in overall bank credit to 14.8%. Other personal loans, which include unsecured credit, grew at 20% to Rs 7 lakh crore, or nearly 8% of the banking sector’s portfolio.
The third-biggest segment is personal services where non-banking finance companies (NBFCs) are the biggest borrower category. Loans to NBFCs, which stood at Rs 5.75 lakh crore as of February 2019, jumped 22% to Rs 7 lakh crore. Overall, the services sector accounts for Rs 24.3 lakh crore of bank loans (27% of bank credit). It is in this segment that some of the most impacted businesses like tourism and hotels fall. However, bank exposure to this segment is relatively small at Rs 45,000 crore.
Specific industries that are expected to be hit on account of the Covid-19 crisis include iron and steel, because of a slowdown in construction and auto. Bank exposure to this industry has fallen from Rs 2.8 lakh crore to Rs 2.5 lakh crore due to deleveraging by some companies and the sale of stressed producers to foreign companies. There have been concerns that the Covid-19 crisis could lead to stress among borrowers, including in the individual segment. This is because personal loans (other than home loans) saw a lot of defaults in the wake of the global financial crisis.
According to Macquarie Capital associate director Suresh Ganapathy, “Drawing parallels with the global financial crisis of 2008 won’t work here…At that time, banks lent recklessly, not much analytics was used, dependence on Cibil or Cibil’s database at that time was still developing. Today, Cibil has 400 million plus unique records,” he said.
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