Indian Banks See Revival In Loan Growth But Concerns Linger

MUMBAI: Indian banks are loosening their purse strings and lending more as pent-up demand surfaces in the Indian festive season, though growth is still nearly half that seen last year.

Several lenders including State Bank of India, the country’s largest lender and HDFC Bank, India’s most valuable bank by market capitalisation saw demand for housing and vehicle loans return to near pre-pandemic levels in the quarter ended September.

“Now that the loan moratorium is over and we have a clearer view about repayments, we’re feeling more comfortable about lending both on unsecured as well as secured retail loans,” said the head of retail banking at a public sector bank, who asked not to be identified as the lender has yet to report its results.

Hamstrung by the pandemic, banks had been more risk averse in lending, with credit growth slumping to around 5% in the first quarter of the financial year.

The uptick spells good news for the Indian economy that had contracted by 23.9% in April-June, during a stringent lockdown to stem the spread of the pandemic.

“After a complete standstill earlier, banks have now also started buying more retail loan securitisation pools from non-banking financial companies to boost their portfolio which has also helped credit growth pick up,” said Anil Gupta, analyst at credit rating agency ICRA.

Even though retail demand has picked up however, corporate credit demand continues to remain sluggish.

Analysts also noted that growth still remains slower compared to last year. In September, retail loans grew by 9.2% compared to 17% in the same period last year, according to regulatory data.

“It’s too early to start celebrating as a clearer picture around the bank’s financial health will emerge only in January-February,” said Jindal Haria, an analyst with India Ratings.

Banks have also tightened their lending parameters so it is likely that retail loan growth may not go back to the highs of 20% plus growth witnessed in prior years, Haria added.

Sustaining the demand momentum beyond the festive season will depend on the containment of COVID-19 and lender resilience, rating agency Emkay Global said.

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