Teji Mandi Explains: Are retail borrowers returning? February numbers throw positive indications

As per the latest Motilal Oswal report, retail credit growth improved to 9.6% YoY in Feb’21. It has also bettered January numbers. In January 2021, retail credit growth was at 9.1% YoY.

Retail demand improves:

Banks have indicated that growth in segments such as Tractors, 2Ws, Auto Loans, Gold Loans, and Affordable Housing has surpassed pre-covid levels. Demand for home loans improved to 8.4% YoY in Feb'21. It was at 7.7% YoY in Jan’21. Vehicle loan growth also improved at 8.3% YoY v/s 7.1% YoY in Jan’21. Only the demand for credit cards saw a slight moderation to 4.8% YoY.

Corporate demand shrinks, Mixed trends in MSMEs:

Credit demand from large-scale industries declined by 1.5% YoY in February. Among MSMEs, medium-scale industries grew robustly at 21% YoY. Demand from micro/small businesses was muted at 1.5% YoY.

Among other categories, Services/Agri sectors improved to 9.3%/10.2% YoY. Commercial Real Estate grew 1.6% YoY and Transport Operators grew 4.6% YoY. NBFCs grew strongly at 27% YoY.

The report also suggests that the Capex cycle is expected to pick up in the first half of FY22, likely to be supported by various PSU companies.

Lending rates bottomed out?

Continued monetary support from RBI has resulted in all-time low lending rates. They are unlikely to decline further from the current levels. With credit demand improving, margin profiles are likely to improve for banks as they are likely to start deploying excess liquidity.

Most banks are also focusing on improving their deposit base to ramp up their liability franchises. The report suggests that it will help large banks (with their already strong liability franchises) will continue to gain incremental market share. And, they are better placed to tackle margin pressure.

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Free Press Journal