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Sudhanshu Ranade

Chennai , Jan. 23

GROSS bank credit increased by 229 per cent between March 1996 and March 2004.

Personal loans grew more rapidly. Personal loans' outstanding in 2004 was more than three-and-a-half times than their 1996 levels.

Housing loans increased from Rs 6,000 crore to Rs 52,000 crore. The increase in loans for consumer durables was more modest; from Rs 1,476 crore to Rs 8,274 crore (460 per cent).

Loans to individuals against shares, debentures and bonds hardly increased at all - a sign that there is something wrong with the data so far as this item is concerned.

Other personal loans increased by 180 per cent. But it was loans against fixed deposits that took the cake. These increased by 119 per cent, from about Rs 12,000 crore in 1996 to Rs 26,346 crore in 2004; one fifth of total personal loans outstanding of that year.

The message seems to be that though households were keen to spend beyond their current levels of income, many of them yet continued to spend out of past savings than out of as-yet-unrealised future income.

One of every five rupees of personal loans outstanding in 2004 was a loan against fixed deposits. This means that there is a large and increasing untapped potential for banks in this regard. Loans against fixed deposits actually declined as a proportion of total fixed deposits, from 3 per cent to 2 per cent between 1996 and 2004, even as fixed deposits increased by 262 per cent, to Rs 12,97,000 crore. A chance for banks to earn a tidy 2 per cent per annum on a corpus running into hundreds of thousands of crores.

On loans that require practically no effort, absolutely no risk, and a zero outlay of funds.

Even after taking into account the fact that not all fixed deposits are from individuals and not all would like to earmark all of their fixed deposits for contingent liabilities, this is simply too huge and too good an opportunity to miss.

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Big chunk of personal loans is against FDs

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