The rise of personal loans

by Janaki Samant

Outstanding non-food credit of scheduled commercial banks (SCBs) increased by 0.7 per cent in April 2022 over the preceding month. During the month, Rs.0.8 trillion was disbursed by SCBs whereas Rs.2.8 trillion was disbursed in March. The increase in April is somewhat unusual.

Usually, April sees a decline in outstanding non-food credit over March. This is because March records a sharp increase, as the fiscal year comes to an end and banks make all-out efforts to reach their credit targets for the year. In comparison, April sees lower fresh credit disbursements compared to repayments of past borrowings, leading to a fall in outstanding credit, month-on-month. But, in 2022, we see an increase in outstanding non-food credit in April.

This increase in bank credit in April is therefore unusual. It possibly indicates that the economy continues to recover from the effects of the pandemic. A revival in the demand for bank credit had commenced in the second half of 2021-22. This seems to have continued into 2022-23.

But this recovery is likely to face headwinds in the near future because of two reasons. First, interest rates are on an upward trajectory. In addition, there is no end in sight for the Russia-Ukraine conflict. This has led to supply constraints and is keeping global commodity prices high. As a result, domestic inflation is likely to remain elevated, affecting consumer demand. High inflation and high interest rates could dampen consumer demand and this in turn could weaken the growth of bank credit seen so far.

Personal loans drove the expansion in outstanding non-food credit in April 2022. Of the other major components of non-food credit, outstanding credit to industry and services stagnated. Credit to agriculture & allied activities increased but it has a relatively smaller share in total non-food credit.

Outstanding personal loans expanded by Rs.0.57 trillion in April 2022. Month-on-month increase eased to a 5-month low of 1.7 per cent. Between December 2021 and March 2022, these had increased in the range of 2.4 per and 4 per cent. Of the various components of personal loans, increase in credit card spends, housing loans, vehicle loans, loans for consumer durables and other personal loans contributed to the increase in this segment. These together make up over 90 per cent of outstanding personal loans.

In April, outstanding housing loans increased by 1.3 per cent during the month over and above the 6.7 per cent expansion recorded in March.

Vehicles loans witnessed a sudden spurt towards the fag end of the 2021-22 fiscal year. On a month-on-month basis, loan growth had remained below 2 per cent for most of the past two years. Outstanding loans increased by 17 per cent in February and 22.2 per cent in March. April recorded a slower month-on-month growth of 2.2 per cent but it comes over a high base. The pent-up demand for automobiles was not getting translated into higher sales as the semi-conductor shortage put constraints on increasing production. With sustained demand, vehicle loans are likely to record good growth, as supply shortages ease gradually.

At four per cent, growth in outstanding credit cards spends accelerated in April compared to the two per cent increase recorded in March. Similarly in case of consumer durables, month-on-month rise in outstanding credit accelerated from 3.9 per cent in March to 4.7 per cent in April. The sub-group ‘other personal loans’ recorded an increase of Rs.0.1 trillion in April. But this was over a sharp fall of Rs.1.3 trillion in March.

Outstanding bank credit to industry had been increasing consistently on a month-on-month basis for almost seven months till March 2022. But this trend was reversed in April when credit declined, though marginally. Slowdown in credit offtake by industry was visible from March. In case of services, outstanding credit disbursed in April remained unchanged compared to the preceding month. Outstanding credit to agriculture & allied activities increased by 1.2 per cent in April compared to 0.9 per cent in March.

The increase in outstanding non-food credit in April over the preceding month indicates strong credit demand. However, this improvement in the performance of bank credit, particularly, retail loans could be hit by rising interest rates and high inflation. The hike in repo rate in May led to a hike in borrowing rates including housing loans. Future rate hikes are imminent. Rising inflation is making consumers postpone their decisions to buy to a later date. This is likely to adversely affect demand for retail loans.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
8.0 +1.3
Consumer Sentiments Index
Base September-December 2015
68.4 +0.8
Consumer Expectations Index
Base September-December 2015
67.6 +0.9
Current Economic Conditions Index
Base September-December 2015
69.7 +0.7
Quarterly CapEx Aggregates
(Rs.trillion) Jun 21 Sep 21 Dec 21 Mar 22
New projects 2.94 3.26 3.53 5.91
Completed projects 0.71 1.28 2.76 1.15
Stalled projects 0.33 0.28 0.06 0.30
Revived projects 1.14 0.39 2.07 0.28
Implementation stalled projects 0.64 0.26 0.65 0.07
Updated on: 25 Jun 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Jun 21 Sep 21 Dec 21 Mar 22
All listed Companies
 Income 42.3 27.5 23.4 21.6
 Expenses 41.8 26.7 21.3 20.5
 Net profit 140.6 55.3 35.4 32.8
 PAT margin (%) 8.9 9.6 9.0 9.1
 Count of Cos. 4,564 4,690 4,733 4,508
Non-financial Companies
 Income 61.1 35.7 29.1 25.9
 Expenses 62.4 36.0 28.8 26.6
 Net profit 195.2 59.5 19.0 12.9
 PAT margin (%) 8.4 8.8 7.5 7.9
 Net fixed assets 4.9 2.2
 Current assets 10.8 15.3
 Current liabilities 0.8 11.7
 Borrowings 12.1 3.7
 Reserves & surplus 12.4 11.5
 Count of Cos. 3,336 3,387 3,428 3,280
Numbers are net of P&E
Updated on: 25 Jun 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 13.6
 Expenses 0.4 -3.4 10.5
 Net profit -4.4 72.2 58.0
 PAT margin (%) 2.0 4.5 10.9
 Assets 9.0 9.7 9.3
 Net worth 4.8 11.7 9.9
 RONW (%) 3.4 6.9 13.5
 Count of Cos. 32,455 29,998 539
Non-financial Companies
 Income -1.2 -2.3 26.3
 Expenses -1.0 -4.4 25.6
 Net profit -20.8 63.5 42.2
 PAT margin (%) 2.2 4.2 13.8
 Net fixed assets 11.2 2.0 -1.9
 Net worth 2.2 10.7 11.2
 RONW (%) 4.7 8.0 22.6
 Debt / Equity (times) 1.2 1.0 0.3
 Interest cover (times) 1.9 2.5 10.3
 Net working capital cycle (days) 81 85 16
 Count of Cos. 25,743 23,675 386
Numbers are net of P&E
Updated on: 20 Jun 2022 11:46AM