Mumbai: Despite consumer spending slowing down sharply, banks have continued to report double-digit growth in retail loans. How? Retail securitisation transactions is the actual the reason for the bump up in the retail credit numbers and the rise in borrowings does not mean that the money was on-lent to individuals. If the lending for securitisation is removed from the bank retail credit growth numbers, there would actually be a decline in retail loan growth.
Data shows that in the first half, retail credit of banks grew 16.6 per cent, or at twice the speed of overall bank credit growth, and apace with the average growth of the past three years. Of the incremental retail loans disbursed by banks, a chunk was to buy 'pools' of loan receivables of non- banks. Such pools-or packages of receivables from retail loans disbursed by non-banks-are sold to investors. These are called retail securitisation transactions and these get classified as retail bank credit.
With conventional sources of funding—bank loans, bonds and commercial paper— becoming difficult to access, many non-banks (NBFCs) have been rushing to securitise their receivables, especially after the credit crunch post the IL&FS crisis in September 2018.
Consequently, the retail securitisation volume doubled last fiscal, and has soared 39 per cent in the first half. Overall, lending for securitisation darted up to 31 per cent of incremental bank credit last fiscal, compared with 17 per cent in 2017 and 11 per cent in 2015. In the first half of this fiscal, that number climbed to 37 per cent. About half of the securitisation transactions were home-loan receivables, while a quarter was vehicle-loan receivables and 11 per cent was microfinance-loan receivables. If these are taken off, there would be a dip in lending growth.
The growth in lending after deducting securitisation flows shows a fall from 16 per cent in fiscal 2018 to around 12 per cent in the first half of this fiscal. This is also the slowest growth in the last five years, according to Crisil Research.
"Consumer behaviour in the past 18 months throws up an unusual trend: spending has slowed, but borrowings remain robust. Private consumption decelerated to 4.1 per cent in the first half of this fiscal, nearly halving on-year. Indeed, for a while now, indicators have been suggesting consumers have turned chary of spending. Then why are they borrowing?...So, to arrive at the true picture of bank retail credit growth, we removed the lending-for-securitisation data, and...Voila! The decline in retail lending growth emerged in sharp relief," wrote DK Joshi, Chief Economist and Dipti Deshpande, Senior Economist at Crisil Ltd in their report, Quickonomics.
"That (numbers reflecting the drag in retail loans) corroborates with the situation on the ground—sales of automobiles have been plummeting, while those of consumer durables, housing and several other consumer-oriented sectors have been sluggish," the economists said....