JOIN USLow rate lure: Consumers hit banks again to borrow
Aided by the lowest interest rates in the history owing to consecutive rate cuts by the Reserve Bank of India, the consumers are rushing again to borrow from banks, despite uncertainty over income and growing joblessness.
A DH analysis of the data of five top banks (two PSBs -- SBI & PNB -- and three private banks -- HDFC Bank, ICICI Bank, and Axis Bank) shows that the retail loan book of these banks has grown 3.8% in the September quarter after shrinking by 1.5% in the June quarter.
The retail loan book of these five banks, which dominate the Indian lending space, stood at Rs 21.36 lakh crore at the end of September quarter, compared with Rs 20.57 lakh crore and Rs 20.87 lakh crore at the end of June and March quarters respectively.
The chairman of the nation's largest lender State Bank of India (SBI) Dinesh Khara on Saturday sounded optimistic about the uptick in the lending process.
He said the credit cycle may take a little longer to get normal, but was optimistic about uptick in retail loans. "While retail loan growth is back to pre-Covid level, credit usage by corporates depends on the on-ground demand and capacity utilisation," he said.
Bank credit grew by 5.06% to Rs 103.39 lakh crore, while deposits rose by 10.12% to Rs 142.92 lakh crore in the fortnight ended October 23, according to the RBI data.
The two PSBs, with 4.2% growth in retail loans, have outperformed the private banks, whose loan book grew by 3.8% in second quarter of the current financial year.
Experts suggest that since PSBs are faster to transmit the rate cut benefits, coupled with a lower average lending rate than the private banks, they are bound to see a faster reversal of the trend. "The public lenders are quick to transmit the rate cut effects. In a downward interest scenario (which we are in right now), their loan is naturally going to be cheaper than ours," a top executive from one of the private lenders told DH.
As of date, according to the RBI data, the weighted average lending rate on fresh rupee loans is at an all-time low of 8.29% -- with PSBs offering an interest rate of 8.12% and private banks 8.66%.
Banks have been forced to reduce the lending rates drastically after RBI slashed the repo rate by 250 basis points in the last two years to the current level of 4%.
The reduction in lending rates was further enhanced by compulsory external benchmarking rolled out by RBI in October last year. Since last year, banks are supposed to mandatorily link one of their loan products to an external benchmark (like bond yield and repo rate).