Note ban lends a hand to consumer lending as consumer-durables & personal loans jump in Nov, Dec

MUMBAI | KOLKATA: Consumer lending was the surprise beneficiary of the November 8 currency swap as Indians borrowed more to spend on high-value items and travel, upending conventional financial wisdom that only basic needs and staples make up the typical shopping list during periods of economic stress.

Central bank data at the end of November showed that demand for white goods — such as refrigerators or automatic washing machines — drove credit expansion in India.

Consumer-durables loans at banks increased 18.2 per cent and personal loans 15.2 per cent in the month while total non-food credit rose 4.8 per cent.

"Demonetisation has played out differently for different segments,” said Rajiv Jain, MD at Bajaj Finance. “It was a highly volatile quarter. Originally, our expectation was it would be much worse. Our consumer balance sheet was up 47 per cent in the quarter.”

The Centre on November 8 decided to demonetise currencies of .Rs 500 and.Rs 1,000 denominations to help combat counterfeiting and root out the source of parallel economy. The government sought to replace about 85 per cent of the total currency circulation by value at one go.

ICICI Bank Retail Portfolio up 17.8 per cent
An anticipated consequence of the move was demand reduction, as about 98 per cent of transactions in India are done through cash. “People were afraid that consumption will slow down after demonetisation,” said Rashesh Shah, chairman, Edelweiss.

“It did slow for a couple of weeks, but things are back to normal now.”

In the last quarter, India’s largest private lender ICICI Bank increased its retail portfolio by 17.8 per cent year-on year. The unsecured credit card and personal loan portfolio rose 39.8 per cent.

At the third-biggest private lender, Axis Bank, retail lending continued to show healthy growth of 22 per cent YoY, led by automobile mortgages, unsecured personal loans and credit cards.



“Some of the businesses such as auto loans and personal loans were relatively less affected,” said Jairam Sridharan, CFO, Axis Bank. “But, there was a distinct slowdown in disbursements, in rural lending, home loans and loan against property.”

Non-banking financial companies (NBFC) too relied on retail credit during the period. Bajaj Finance reported a 47 per cent jump in consumer durable loans to Rs 26,997 crore during the third quarter of the current financial year. Similarly, Bajaj’s loans to the rural sector increased 122 per cent to Rs 2,575 crore. Another NBFC, Capital First, saw 42 per cent increase in its retail book to Rs 17,000 crore at the end of December 31, 2016.

“Household balance sheets are expanding,” wrote Morgan Stanley Equity Strategist Ridham Desai and Sheela Rathi in a report titled ‘The Coming Squeeze’.

“The concomitant impact is leverage-led rise in consumer discretionary demand. Buy discretionary stocks, including autos and retail.”

White-goods makers said cash sales disappeared after demonetisation. As per industry estimates, around 85 per cent of total sales across India was on cash while it was around 65 per cent in the larger cities in pre-demonetisation days.

The balance was driven by loans and credit cards. Loans from banks, non-banking finance companies and credit cards shot up to 95 per cent of total sales in December. In January, cash sales improved marginally to just 10 per cent of overall sales.

Videocon chief operating officer CM Singh said despite the growth of finance sales, it failed to compensate for the loss of sales which was driven by cash.

“In fact, even the marriage season, which is a major lifeline for the industry, was a total washout in November and December,” he said.

The industry, however, does not expect the cash component to go up before government frees up the withdrawal limit which too is scheduled in mid-March.

“White goods are high-value purchases and till people have enough liquid cash in hand, cash sales will not pick up since consumers are not able to withdraw cash,” said Godrej Appliances business head Kamal Nandi.