The Hindu Business Line : Retail loans surpass overall credit growth

Retail loans have surged by 40.9 per cent in fiscal 2005-06, which was higher than the overall credit growth of 31 per cent, according to the RBI's report on Trend and Progress of Banking in India.

In the retail loans segment, auto loans experienced the highest growth followed by credit card receivables, other personal loans (loans to professionals and for education) and housing finance.

Auto loans increased by 75.1 per cent to touch Rs 61,369 crore in 2005-06, against Rs 35,043 in 2004-05. Housing loans increased by 33.4 per cent to Rs 1,79,116 crore (Rs 1,34,276 crore)

As a percentage of gross advances, retail loans increased from 22 per cent in March 2004 to 25.5 per cent in March 2006.

The diversification of the credit base with increased focus on retail loans, which generally have low delinquency rates, contributed to the more favourable credit risk profile, said the report.

Sensitive sector lending

Lending by scheduled commercial banks to the sensitive sectors (capital market, real estate and commodities) increased sharply during 2005-06 mainly on account of a sharp increase in exposure to the real estate market. And, among the bank groups, new private sector banks had the highest exposure to the sensitive sector, also mainly due to their real estate exposure.

The total exposure of the scheduled commercial banks to sensitive sectors constituted 18.9 per cent of aggregate bank loans. Of this, 17.2 per cent was in real estate, 1.5 per cent in capital market and 0.3 per cent in commodities.

The RBI has, however, expressed concern about the stagnation of bank credit to the small and medium enterprises sector.

"Bank credit to the SME sector has tended to stagnate in the recent years which is matter of concern," said the report.

Innovative ways

The central bank has asked banks to devise imaginative ways to mop up the resources in rural areas if they are to balance deposit mobilisation and credit creation.

Banks should innovate and look for modern delivery mechanisms that economise on transaction costs. "Innovative channels for credit delivery for serving new rural credit needs, encompassing full supply chain financing, covering storage, warehousing, processing and transportation from farm to market will have to be found," it said.

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