Costlier loans may not hurt credit demand, say bankers

Rajiv Anand, deputy MD, Axis Bank, said credit demand was unlikely to be hurt, adding that demand was coming in from the corporate, SME and retail segments.

Costlier loans may not hurt credit demand, say bankers
Partha Pratim Sengupta, MD & CEO, Indian Overseas Bank, confirmed that his bank was seeing strong demand for loans.

Retail and corporate borrowers will have to pay higher interest rate on loans following Friday’s hike in the repo rate by 50 bps to 5.4%, but bankers say this will not stymie the demand for credit.

Rajiv Anand, deputy MD, Axis Bank, said credit demand was unlikely to be hurt, adding that demand was coming in from the corporate, SME and retail segments. “It is not as though the rates are unnaturally high, they are at pre-Covid levels and the economy is growing.”

Partha Pratim Sengupta, MD & CEO, Indian Overseas Bank, confirmed that his bank was seeing strong demand for loans.

Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank, also said demand for loans from MSMEs and individuals was picking up. “Businesses are doing better and ahead of the festive season there is demand for working capital, even though interest rates may have risen” Ghosh said.

Also Read: TDS on large loan waivers likely to go

However, those retail customers who borrowed at 6.5% a few months ago will now need to service the loans at 8% and that could hurt. “While there may be no immediate stress, 150 bps jump in loan rates is not small,” Dipak Gupta, joint managing director, Kotak Mahindra Bank, said. Gupta added that the rate hiking cycle was not over yet.

Other bankers, too, expressed similar concerns, given the repo rate is expected to be hiked by another 60 bps.Meanwhile, the credit-deposit ratio for the system, which has been on the rise since October last year, stood at 73.1% for the fortnight to July 15, up 365 bps, over the corresponding fortnight in 2021. It was also marginally higher than in the July 1 fortnight.

Anand of Axis Bank said with deposits growing at a slower pace than credit, deposits would be repriced, resulting in a hike in the MCLR.

Also Read: ICICI Bank, PNB hike external benchmark based lending rates

“While the retail and SME loans will be repriced immediately since they are linked to external benchmarks, the transmission into higher MCLR rates could take a while,” Sengupta of IOB said.

Banks have already started raising interest rates on retail deposits. In absolute terms, bank deposits have increased by `13 trillion over the last 12 months. Loan growth came in at 14% y-o-y for the fortnight to July 15, while the pace of growth in deposits was 8.4% y-o-y.

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