Personal loans grow fastest; stress grows too

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Personal loans have grown the fastest in the fourth quarter at 35.5%. A year-ago, it had reported a growth of 11.3%.

During the lockdown in the first quarter of 2020-21, personal loans had degrown 59.1%. However, in the corresponding quarters, it reported a growth of 4.2% (in the second quarter) and 10.6% (in the third quarter) respectively. However, the sector saw a leap in the January-March 2021 period.

Personal loans refer to loans given to individuals and they consist of consumer credit, education loans, loans given for creation/enhancement of immovable assets (such as housing, etc), and loans given for investment in financial assets (such as shares, debentures, etc).

Personal loans account for over 26% of bank credit

In comparison, loans to agriculture in the fourth quarter grew 20.5% and services 4.1%. Loans to industries reported a negative growth of 8.6% in the January-March period.

According to the Reserve Bank of India (RBI)’s recent Financial Stability Report, personal loans which accounted for 16.2% in 2014 of total bank credit have now jumped to 26.3% in 2021. In personal loans, the share of housing loans jumped from 8.5% to 13.8% during the last seven years.

Rising NPAs

At the same time, delinquencies in the personal loan segment have raised concerns too. As per the RBI report, scheduled commercial banks’ GNPA (gross non-performing asset) ratio for the personal loan sector has moved up, while the ratio dipped for all other sectors.

In May 2021, the central bank had asked banks to bring in a facility for implementing a resolution plan for existing personal loans, after the second wave created a major disruption in people’s capacity to repay their loans. The central bank insisted that the plan is to alleviate the potential stress to individual borrowers and small businesses, in view of the resurgence of the Covid-19 pandemic in India in the recent weeks and the consequent containment measures to check the spread of the pandemic.

Agriculture, personal loans record double digit growth

As per the RBI report, agriculture and personal loan books remained bright spots and recorded double digit growth in March 2021. However, in April 2021, loans to these sectors contracted by less than 1%. In the personal loan category, housing and vehicle loans witnessed encouraging growth; vehicle loan growth exceeded its pre-Covid-19 levels for both public sector banks and private banks. Overall, the bank credit outstanding to the industrial sector, which had contracted over the past five quarters, turned a corner during the fourth quarter of 2020-21 but the sector’s share in total credit declined during the year. Growth in bank loans to the services sector remained tepid across all bank groups since the onset of the pandemic and slipped into the negative zone in Q4, with public sector banks being the major contributors to the fall.

New loans extended by banks showed recovery in the second half of 2020-21, especially for personal purposes. New loans to the private corporate and household sectors, which nosedived during the first half, recovered in the subsequent period.