Home or auto loan borrowers seldom stop repaying loans. It’s this belief in individuals’ credit discipline that’s attracting state-run banks towards retail loans, which so far has been the turf of private lenders.
Public Sector Banks (PSBs), facing a bitter battle with bad loans following years of reckless lending to large corporates, have now turned to retail customers. In fact, retail is the key for troubled banks brought into the fold of RBI’s Prompt Corrective Action (PCA), effectively putting their lending privileges to the industry under the axe. Interestingly, there are signs of improvement. For instance, the 11 banks under PCA have seen a four per cent jump in their share of retail loans over the four years ended September, 2018.
According to Jefferies, between March, 2015 and September, 2018, these banks’ retail share rose from 15 per cent to 19 per cent. The obvious reason for this sharp growth is because banks under PCA are barred from lending big-ticket loans. “Yet their retail and home loans are up 16 per cent and 53 per cent.
Their share of retail loans has risen from 15 per cent in March 2015 to 19 per cent in September, 2018, while their share of home loans in retail has climbed from 46 per cent to 61 per cent in the same period,” it said. The downside is that these banks lost market share in corporate loans and unsecured personal loans.
It’s not just these 11 banks, but almost all PSBs are turning to retail. SBI hopes to increase its retail loan book to 60 per cent of total advances this fiscal, up from 57 per cent, including exposure to SMEs. Within personal retail loans, home loans account for more than half, followed by auto, education and personal loans. Even ailing IDBI Bank is stepping up focus on housing, retail, farm and MSME loans to make up for its falling corporate loan book. Its retail loans made up 23 per cent of total advances as on December, 2017, which increased to 25 per cent in FY18 and is likely to be 29 per cent this fiscal. Of this, housing loans and mortgages comprise 94 per cent and the rest include auto, education and personal loans — categories which private players have a foothold on.
Private lenders aren’t behind. Take ICICI Bank, which counts retail as its largest growing segment. From 38 per cent of total advances in FY12, retail loans weve in excess of 56 per cent in FY18. It’s now targetting an increase to 60 per cent by FY20. This fiscal alone, as former Chanda Kochhar, MD & CEO, ICICI Bank disclosed, it will grow its personal loans and credit cards segment by a massive 40 per cent. “We will be focusing on growing higher yielding loans within well-defined risk parameters,” she had explained. Similarly, Axis Bank, which has a 60:40 mix (60: retail & SME; 40: corporates) as on FY18, and is focusing on granularising the retail loan book through customer acquisitions from both branches and digital channels.
Clearly, retail offers fewer defaults and banks can cross-sell products and expand their business potential. The rush to retail isn’t at dangerous levels, though the banking regulator has ringed alarm bells, advising lenders to exercise caution to avoid future mishaps.