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Personal loan segment leads contraction in bank credit in first month of lockdown

RBI data shows even priority sector lending of banks witnessed a sharp contraction in credit outstanding.

Written by Sandeep Singh , George Mathew | Mumbai, New Delhi | June 11, 2020 3:00:55 am
Personal loan, Personal loan banks, bank credit, coronavirus lockdown The biggest contraction was witnessed in the personal loan segment that has been the harbinger of bank’s credit growth and consumption led economy for several years now. (File Photo)

With the lockdown across the country leading to a severe economic slowdown, banks witnessed their non-food credit outstanding contract by Rs 1.1 lakh crore between March 27 and April 24. The biggest contraction was witnessed in the personal loan segment that has been the harbinger of bank’s credit growth and consumption led economy for several years now.

The personal loan segment that includes home loan, vehicle loan, credit card, consumer durable loan and education loan among others witnessed a sharp contraction in its credit outstanding by Rs 62,861 crore or 2.5 per cent from an outstanding of Rs 25.53 lakh crore on March 27 to Rs 24.9 lakh crore on April 24, 2020, according to the latest RBI data.

The contraction has come after the credit outstanding for the personal loan segment expanded by Rs 3.32 lakh crore or 15 per cent in the financial year 2019-20. The share of personal loan category in the non-food credit outstanding of banks stands at 27.4 per cent and has grown sharply from a share of 18.6 per cent six year ago. It has been the biggest driver of credit growth over the last six years. “Banks faced logistical and back-office issues since the third week of March. Call centres of banks virtually stopped functioning due to the lockdown. Banks also cut down the number of employees involved in the personal loan segment. Bank representatives were unable to meet the clients to sell personal loans and footfalls in bank branches declined further,” said an official of a private bank.

Even the housing loan segment which was a key driver of the credit business witnessed a contraction of around Rs 8,200 crore during the month as the real estate business came to a standstill. The credit card outstandings also fell by over Rs 11,000 crore as customers postponed major purchases. By comparison, the contraction in credit outstanding for the industries in April over March 2020 amounted to Rs 20,779 crore or (-) 0.7 per cent and the contraction for the services sector was Rs 20,791 crore or (-) 0.8 per cent. The share of industries in overall bank credit outstanding is at 31.7 per cent and that of the services sector is at 28.3 per cent.

RBI data shows even priority sector lending of banks witnessed a sharp contraction in credit outstanding. Banks credit to the segment contracted Rs 86,345 crore from credit outstanding of Rs 28.97 lakh crore in March 27 to Rs 28.11 lakh crore on April 24, 2020.

It is important to note that the government last month announced a Rs 20 lakh crore package. Bankers say this is expected to result in a rise in credit outflow in the economy. In an interview to The Indian Express last week, Uday Kotak, MD, Kotak Mahindra Bank said, “For MSMEs the government has played a very important game by giving Rs 3 lakh crore guarantee and which is working. Banks will disburse it between now and September and Rs 3 lakh crore will go out in the economy hopefully.”

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