With a large number of corporates becoming loan defaulters, the Reserve Bank of India has cautioned banks against “overdoing” the shift in the leverage from the corporate sector to the household sector through personal and housing loans.
Several public sector banks (PSBs) have started focussing on personal and housing loans in the wake of poor loan offtake and defaults by corporates. “If banks continue to remain saddled with huge NPAs for a long time, it would make them risk averse and choke the lending for economic activities in general…. consequence is the likely shift by the PSBs to loan segments such as personal loans and housing loans where the banks so far have had lowest NPAs,” RBI Deputy Governor NS Vishwanathan said in a conference on ‘Asset quality of India banks’ on Thursday.
“While this may help in rebalancing the loan portfolio in favour of less volatile sectors, care would have to be taken not to overdo this and shift the leverage from the corporate sector to household sector,” he said.
During the 12 months ended June 2016, personal loan outstandings of banks shot up by 18.45 per cent to Rs 14,37,400 crore from Rs 12,13,500 crore in June 2015. The rise in personal loans in June 2015 from June 2014 was 17.1 per cent, according to the RBI statistics.
As per RBI data, credit growth for the fortnight ended August 19, declined to 9.6 per cent. Weakness over the last few months has stemmed from low corporate demand and lack of fresh projects. As per sectoral deployment of bank credit, non-food credit growth as of June 2016 declined to 7.9 per cent while credit to large industries (which accounts for 35 per cent share in non-food credit) grew at a sluggish 2 per cent on a year-on-year basis. A slowdown was observed across sub-sectors such as food processing (-9.3 per cent against 6.5 per cent in June 2015) and cement & cement products (-2.7 per cent against 5.1 per cent). Infrastructure loans declined by 2.1 per cent Y-o-Y as power sector loans were down 7.7 per cent and telecom sector growth slowed to 2 per cent, according to a Religare report.
The total stressed assets in the Indian commercial banks have risen to 11.5 per cent with the PSU banks leading the strain at 14.5 per cent as at end-March 2016. “It is worth noting that despite the ‘high leverage’ being a well-established and most widely known risk factor of corporate lending, bank lending to industrial sector continued at an average elevated rate of over 20 per cent,” the RBI said.