Banks post 6.7% growth in personal loans in pandemic year

Personal loans are growing at 6.7% in the country, more than double the bank credit growth. According to the latest Reserve Bank of India (RBI) data, banks have reported a total personal loan outstanding of Rs 27,24,415 crore as on January 29, 2021, more than a half of it being accounted for by housing loans.

Housing loans, which had reported a poor growth in the first two quarters, have picked up in the third quarter, thanks to the drop in the interest rates and the decision by various state governments to slash stamp duty and registration charges. Housing loan outstanding has grown 5.9% to Rs 14.18 lakh crore as on January 29, 2021.

The revival in economic growth has clearly reflected in the growth of auto loans as well as consumer durable loans. Vehicle loans have reported a 6.9% growth to Rs 2.38 lakh crore. Consumer durable loans, relatively a small segment, has reported a 20.4% growth to Rs 7,397 crore.

Credit card outstanding has clocked a 7.6% growth to Rs 1.16 lakh crore. Some private banks as well as public sector lenders have been making a steady effort to expand their credit card base with attractive offers.

Loans against gold jewellery have been a traditional way of raising funds for personal use. During the pandemic, loans against gold jewellery grew a massive 64.7% to Rs 43,141 crore. In fact, it has shown a 132% growth year-on-year from January 29, 2020 to January 29, 2021. Since gold prices locked to an unprecedented growth curve and moved up 28% in 2020, a lot of people took this loan route to raise funds for their personal or household needs.

Other personal loans reported 9.8% growth to Rs 7.68 lakh crore.

As Covid-19 forced many students to abandon their plans for foreign education and far-away universities within India, education loan portfolio took a minor beating. One of the fastest growing portfolios earlier, education loans reported an outstanding of Rs 64,364 crore on January 29, marginally down 2.1%.

Advances against fixed deposits have dropped 15.5% to Rs 67,176 crore. Advances against shares and bonds have also dropped 22% to Rs 4,163 crore.

As the interest rates dropped in 2020, personal loans have become pretty attractive. Analysts believe that personal loan portfolio will continue to grow, going forward.

During the first three quarters (April-December) of 2020-21, bank credit has grown 3.2%, against 2.7% 2019-20, primarily driven by retail and agriculture credit growth. Personal loan segment has contributed its might to the overall credit growth. In the retail segment, housing loans and personal loans have been a key driver for banks.

What is worrying bankers is the growth in delinquencies in personal loans.

“Most banks are witnessing a jump in delinquencies. Some are probably under-reporting it, hoping that they will be able to overcome it soon,” said a senior banker.