Banks and NBFCs fuel rising consumer spending in India with easy credit

ByRichard C. Sloan

Nov 1, 2021

Some of India’s leading lenders and shadow finance companies are helping fuel demand from consumers keen to splurge on everything from clothing to two-wheelers and homes, offering hope for a consumer-driven recovery in Asia’s third-largest economy.

Businesses expect sales during Diwali – the Hindu Festival of Lights – to pick up to levels seen before the pandemic struck early last year. This is in part because financiers, sitting on a huge pile of excess liquidity, are eager to lend with outstanding sustainable consumer loans, already at their highest level since March 2020. Borrowers want to take advantage of low rates. record interest, an improving labor market and bottlenecks. ease and better economic prospects as vaccinations accelerate.

HDFC Bank retail loans jumped 12.9% in the three months ended September from a year earlier, the lender’s first double-digit growth for these loans since the onslaught of the pandemic . The country’s third-largest private lender, Axis Bank’s personal loans grew 16%, the fastest pace in five quarters, and the assets of India’s largest consumer lender Bajaj Finance increased by a record.

“We expect economic activity to pick up further, driven by the holiday season, the resumption of vaccination and the likely increase in government spending,” said Srinivasan Vaidyanathan, chief financial officer of HDFC Bank, at the meeting. from a recent earnings conference call. Government spending for better health services, roads and infrastructure are essential as they boost growth and incomes, economists say.

Vaidyanathan added that loans to the retail sector were increasing. For the country’s largest private lender, this is a change in strategy after the withdrawal of personal loans last year.

Not only banks, but some shadow lenders – an industry hampered by a damaging default in 2018 – are keen to get started by offering loans for as little as 10,000 rupees ($ 134).

Mehul Kumar, a 24-year-old Youtuber based in Mumbai, recently decided to buy a sports bike with a loan of 1.3 million rupees. “Interest rates are low, banks are ready to lend during Diwali, and the winter season is great for biking. I got my loan approved in just 24 hours, ”he said over the phone.

Times of the “feasts”

Indian lenders have used the pandemic to consolidate their capital base, which now allows them to increase lending, especially to the household sector. Private sector banks, which have been at the forefront of scaling up consumer lending, raised Rs 536 billion in equity in the past fiscal year while their state counterparts raised Rs 120 billion. capital rupees.

“Growth looks better at the moment in a wider set of segments, recoveries are under control,” said Dipak Gupta, Deputy Managing Director of Kotak Mahindra Bank Ltd. “It all gives a comforting feeling to take your foot off the brake and start moving it towards the accelerator.”

According to Rajeev Jain, managing director of Bajaj Finance Ltd, there has been a strong pick-up in growth in recent months, compared to when the second wave was at its peak – a period he described as a “famine.” .

“We are living in a time of famine and celebration,” Jain added. In the absence of another wave, “we’re pretty confident about second half growth.”

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