Vehicle loans, too, have seen growth rates fall to 10-16 per cent between July- November from 21 per cent last year, data from Reserve Bank of India showed.

Growth pangs

According to Karan Gupta, Head and Director of financial institutions at India Ratings & Research, the current trends are nothing but reflection of slowdown in the economy and the RBI’s hike in risk weight on unsecured credit segments.

“The GDP forecast for the full year has been trimmed by the RBI and our in-house team as well. We had estimated 7.5 per cent GDP growth in FY25 and it currently stands at 6.4 per cent. If you look at overall growth in retail loans, it used to be in the 18-20 per cent range for many years, but it has come down sharply to 12-13 per cent,” he said.

Lenders have tightened their lending filters, Gupta says, and if the desired level of wage growth is not occurring on ground, consumers will evaluate their purchases and ascertain if they can serve liabilities. India Ratings now expects credit growth of 13-13.5 per cent for FY25 and FY26, but the mix is likely to change with a continued slowdown in lending to shadow lenders and the retail sector. This is likely to be offset by a revival in private capex, benefiting growth of the corporate segment.

Search for better returns

According to chief of a private bank, lenders are chasing loans with higher returns as the yield on premium home loans is lower. Separately, though there is a security attached while extending affordable home loans, enforcing the security in case of default does not lead to desired returns due to lower ticket size of the collateral.

“…When I look at rural and urban consumption, the former is performing on expected lines but urban consumption has not grown that much…in affordable housing, enforcing security is difficult due to lower ticket size, and if banks are cautious they may get cautious in this segment as well,” the CEO said.

“For premium housing, yields are very low. Given the rising funding cost presently, assets are not a worry but worry is how to fund these assets. Due to that maybe some banks are looking at segments where risk adjusted returns is better,” they added.

According to a public sector banker, vehicle loan growth has taken a back seat as consumers may consider postponing their buying decisions in hopes of a rate cut this calendar year.

Pointers:

1- Home loan growth fell sharply to 12-13 per cent in July-November from 37 per cent

2- Vehicle loans growth rate fell to 10-16 per cent from 21 per cent

3- Premium housing loans offer low returns; hard to enforce securities in case of affordable homes.