[sbinews] Personal Loan Spurt
- From: sbistcbangalore@xxxxxxxx
- To: sbinews@xxxxxxxxxxxxx
- Date: Mon, 22 Dec 2003 20:30:27 +0500
Spurt in personal loans helps banks offset fall in industrial credit
TUSHAR K MAHANTI / ETIG
PTI[ SUNDAY, DECEMBER 21, 2003 10:09:08 PM ]
Which Indian state attracts the largest amount of bank credit? No prize for
guessing the correct answer. It’s Maharashtra .
Maharashtra is the country’s most industrialised state and since the larger
part of the bank credit flows to industrial sector it is only imperative that
the state would top the list. The state accounts for more than a fourth of the
outstanding bank credit of all states in each year during the last decade.
What is significant, however, is that the state has retained its premier
position despite a fall in its share in outstanding bank credit to industrial
sector — share of industry in state’s outstanding bank credit was down by 12
percentage points from 58% in 1997-98 to 46% in 2001-02.
Much of this was due to sharp rise in personal loan in the state. The
outstanding personal loan of Maharashtra has increased by an annual compound
rate of over 25 % during 1997-98 to 2001-02 and its share in national
aggregate now hovers around 14% — the highest among the states.
Of course, it is not Maharashtra alone, most of the Indian states have
witnessed sharp rises in their personal loan kitty since the mid-nineties.
The share of personal loan in aggregate bank credit in Andhra Pradesh has
increased from 14.3% in 1997-98 to 17.2% in 2001-02 and in Karnataka it has
increased from 13.3% to 19.5% during the same period.
This, of course, has not come as a surprise. For, as the rate of fund flow to
industries declined following faltering investment schedule of Corporate India
during the late 90s, the banks were desperately looking for newer deployment
avenues. They moved beyond their traditional customer base and tried
aggressively to become a one-stop financial shop providing all types of
financial services to suit customers’ need.
The move has helped them to expand business.
Personal loan has now become an important outlet for bank credit. Its share in
aggregate outstanding credit of our scheduled commercial banks has increased
steadily from 10.5% in 1997-98 to 12.6 % in 2001-02.
In actual terms, the aggregate amount of personal loan has increased by 24.1 %
annually compounded from Rs 34,752 crore in 1997-98 to Rs 82,518 crore in
2001-02. Aggregate outstanding bank credit during the same period in contrast,
has grown by 18.7% annually.
For our banks it is not higher credit off-take alone, the magnitude of risk too
is lower here. Since the credit is spread over a large number of accounts and
the average share of individual account is relatively low, the risk of recovery
is considerably less. Also, since the larger part of this loan is against
mortgages of personal properties, the propensity to default is minimal.
This is significant for our banks, which have witnessed a steady rise in bad
debts over the years. The success has prompted them to take special efforts to
expand the share of personal loans in their credit off-take.
But while the rise in personal loan has given commercial banks an avenue to
deploy their funds, it has helped industries to revive demands too. Indian
consumers are now increasingly using bank credit to buy durable goods. In fact,
more than Rs 3,200 crore of the outstanding personal loan in 2001-02 went to
pay for consumer durables.
This was about two-and-half times more than Rs 1,300 crore that was used for
buying consumer durables five years ago, in 1997-98.
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