Thanks to the second successive half-year of over 19% (y-o-y) growth in loans to individuals and an over 18% (y-o-y) growth in loans to the services sector, non-food credit of banks grew in double digits in the first half of FY17, for the first time since FY14, according to data released by the Reserve Bank of India (RBI).
While the growth in housing loans, which account for over half of total outstanding loans to individuals, slowed down a notch to 18% (y-o-y) as compared to 18.8% (y-o-y) in H2FY16, most other loans to individuals grew at a much faster rate in H1FY17 as compared to the preceding half year. Consumer durable loans, for instance, grew at 21.5% (y-o-y) in H1FY17 as compared to 16% (y-o-y) in H2FY16. Credit card loans, similarly, grew at 28% (y-o-y) in H1FY17 as compared to 23.7% in the preceding half year.
And if one goes by bankers’ guidance, the growth in credit card loans is only expected to get stronger. “I think we should see a better growth in this quarter (Q3) because traditionally, anywhere between a third to sometimes even 40% of the annual credit card spends tend to happen in the December quarter, simply given that the festive season is on. So if we do have strong spends and then there are some rewards linked to that, I would expect that credit card loan growth this quarter will be stronger than it was in the previous quarter,” Paresh Sukhtankar, deputy managing director of HDFC Bank, the market leader in the credit cards space, had said after the announcement of the bank’s September quarter results.
While the growth rate in loans to individuals hit a multi-year high during the half year, credit to the industry grew at just 0.87% (y-o-y) – the least in at least eight years — during the half-year ended September. Bankers point at the large difference between banks’ marginal cost of funds based lending rates (MCLRs) and the yield on highly rated bonds as the reason behind corporates increasingly moving towards the bond market.
While an FIMMDA benchmark for AAA rated 10-year corporate bonds is currently at 7.68%, the same for AA rated bonds is at 8.19%. The yield on 10-year G-Secs, on the other hand, is at 6.81%. As compared to this, the lowest one year MCLR currently being offered by banks is at a much higher 8.9%.