Retail Credit Shrinks M-O-M For the First Time In 2 Years

retail credit
Retail credit, one of the prime engines of the banking system took a considerable blow in April as the nationwide lockdown severely restricted avenues for consumer spending. Of late, lenders have also turned more cautious on the retail segment.
Outstanding retail credit in the banking system fell 2.5% between March and April to Rs 24.9 lakh crore for the first time since May 2018, showed data released by the Reserve Bank of India (RBI).
While all categories of loans to individuals recorded a decline between March and April, the steepest fall in outstanding was seen in retail credit against fixed deposits (-14.6%) and against shares and bonds (-9.67%). Outstanding consumer durable loans fell 4.19% and other personal loans, mostly unsecured, fell by 3.69% month-on-month (m-o-m).
“In terms of annual incremental credit flow of ~Rs 6.2 trillion, there was a shift from personal loans and agriculture to industries and services MoM due to strong credit flow witnessed in March. Fall in the share of personal loans flow from Mar’ 20 to Apr ’20 (53.3% to 43.2%) was mainly attributable to housing (29.1% to 26.2%),” analysts at Centrum Broking said in a note on Monday.
Traditionally, banks have never faced any significant stress in their retail credit portfolios, barring the Agri segment, which sometimes threw up high slippages in adverse circumstances. In the last few months, however, banks have started taking a hard look at the quality of their retail portfolios. Kotak Mahindra Bank has repeatedly voiced concerns about the unsecured retail segment. Axis Bank has also told analysts it has been tightening the screws for its retail customers. It’s executive director (retail banking), Pralay Mondal said the bank will move more and more towards the “secured business” this year.
What has been an area of strength for private banks may turn into a difficult situation for them, analysts say. “Private banks are more retail-credit-focused. This supports income diversity, but their risk appetite for unsecured retail is also significantly higher than state-owned peers. Moreover, they have aggressively expanded their retail exposure in recent years,” Fitch said in a recent report.

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