The credit to consumer durables segment by commercial banks saw an uptick in October on the back of GST cuts and festive demand. The loan segment grew 6% month-on-month in October to Rs 23,645 crore, the latest data from the Reserve Bank of India (RBI) showed. On a yearly basis, the segment grew 1% compared to a fall in growth In past few months.
Festive demand fuels growth despite past curbs
Sachin Sachdeva, vice president & sector head, Financial Sector Ratings- ICRA, said that the month-on-month expansion in consumer durable loans is largely attributable to heightened demand during the festive season. He added that banks are still minor participants in consumer durable financing when compared to non-bank financing companies (NBFCs). In durables, banks have observed a rise in customer interest across home appliances.
RBI’s Risk Weight Hike
The RBI had increased risk weight by 25% to 125% on unsecured personal loans in November 2023 on account of asset quality worries, along with bank credit to NBFCs. Consequently, the segment saw a sharp decline in growth.
Though the RBI reversed risk weights on bank credit to NBFCs, it did not lift the curbs on banks’ direct unsecured lending.
As a result, banks have scaled down their unsecured personal loan segment including consumer durables. They still remain cautious and selective while lending in this segment.