Growth in loans by private banks, NBFCs slows: Credit Suisse report

‘Auto sector crisis, more caution in lending prime reasons’

FILE - In this April 27, 2014 file picture Swiss flags fly at the entrance of of Swiss bank Credit Suisse in Zurich, Switzerland.E uropean bank Credit Suisse AG pleaded guilty Monday May 19, 2014 to helping wealthy Americans avoid paying taxes through secret offshore accounts and agreed to pay about US $2.6 billion. The Justice Department said it was the largest penalty imposed in any criminal tax case. Credit Suisee is the largest bank to plead guilty in more than 20 years. (AP Photo/Keystone,Patrick B. Kraemer)

Growth in loans by private banks and non-banking finance companies (NBFCs) has slowed down amid a slump in consumption demand, as economic growth continues to be sluggish.

According to a report by Credit Suisse, while slowdown in credit growth for non-banking finance companies was expected, the same is now witnessed by private sector lenders mainly due to moderation in vehicle loans.

“NBFCs’ loan growth expectedly continued to decelerate and dipped to 11% y-o-y (2% q-o-q). Surprisingly, private banks’ loan growth also came off to 15% y-o-y (1% q-o-q) even as deposit growth picked up. Moderation in vehicle loans in the face of a slowdown in the auto sector and increased caution appear to be the prime reasons,” the report said.

NBFCs are facing a cash crunch after banks became cautious in lending to the sector post the debt default by IL&FS in October last year.

Reserve Bank of India (RBI) and the government have taken several steps in recent times to increase the credit flow to the sector. “NBFCs’ growth continued to trend down amid credit differentiation by bond markets, with healthier ones, or those with strong parent backing, being able to tap comfortably into bond markets,” the report said.

Unsecured loans

Apart from slowdown in auto loan growth which is mainly due to falling vehicle sales, unsecured loans’ growth, which was strong in recent years, has seen some moderation, the report said.

RBI recently reduced the risk weight on unsecured personal loans and individual vehicle loans from 125% to 100% to encourage banks to lend more in these sectors.