From auto to home, rates to go up across segments
Retail lending rates across most products - auto loans, personal loans, and loans against securities - are likely to go up by, at least, 50 basis points in the coming weeks.
By ET Bureau |
MUMBAI: Retail lending rates across most products ��� auto loans, personal loans, and loans against securities ��� are likely to go up by, at least, 50 basis points in the coming weeks. But banks may prefer to tread cautiously, as further rate hikes could push up defaults and hit demand. Bad loans have been rising across most retail products in the past few months.
Retail loans are seeing a lower growth in the past few months. It grew by almost 16% as on May 23 compared with 24% the previous year. The two fastest-growing segments in banks��� retail loan portfolio are credit cards and education loans, according to RBI.
���The policy is directionally signalling a rate hike. The demand growth could get affected. Delinquencies are rising on a year-on-year basis and this could be a worry,��� said Meera Sanyal, country executive, India, ABN Amro Bank.
Auto loans, which have seen a rate hike of around 1.5% in the past few months, are likely to see another rate hike of 50-75 basis points. Demand has already seen a drop in July.
���The rise in rates have certainly impacted demand. Enquiries are now down around 20-25%. Also, it���s taking a longer time for enquiries to close from around a week earlier to three to four weeks now,��� says Sumit Bali, CEO, Kotak Mahindra Prime.
Defaults in car loans have already seen around a 20% hike in the past one year. Even though rack rates are at around 16%, customer rates are at around 13%. For the past few months, incidentally cash deals have started increasing. Also, down payments by customers have increased.
The two-wheeler segment could see a 50 basis point hike in interest rates. However, bankers are also waiting to see how manufacturers are reacting to the current rate hike. Already rates in this segment are one of the highest at between 24-26%. Delinquencies in this segment have seen a sharp rise with the result that some of the financiers have already gone out of the segment.
In the personal loan segment, rates are already hovering around 19%. This segment is supposed to be a bit more inelastic in demand compared with other retail loans. Bankers are likely to hike rates in this segment by a maximum of 50 basis points.
Moreover, defaults are rising even among the higher end of the portfolio. Most bankers concurred that demand for loans have come down by around 15% in July as higher rates have started affecting demand.
Currently, interest rates in this segment ranges between 12.5% and 13.5%. Rates in this category are also likely to be hiked by, at least, 50 basis points.
Retail loans are seeing a lower growth in the past few months. It grew by almost 16% as on May 23 compared with 24% the previous year. The two fastest-growing segments in banks��� retail loan portfolio are credit cards and education loans, according to RBI.
���The policy is directionally signalling a rate hike. The demand growth could get affected. Delinquencies are rising on a year-on-year basis and this could be a worry,��� said Meera Sanyal, country executive, India, ABN Amro Bank.
Auto loans, which have seen a rate hike of around 1.5% in the past few months, are likely to see another rate hike of 50-75 basis points. Demand has already seen a drop in July.
���The rise in rates have certainly impacted demand. Enquiries are now down around 20-25%. Also, it���s taking a longer time for enquiries to close from around a week earlier to three to four weeks now,��� says Sumit Bali, CEO, Kotak Mahindra Prime.
Defaults in car loans have already seen around a 20% hike in the past one year. Even though rack rates are at around 16%, customer rates are at around 13%. For the past few months, incidentally cash deals have started increasing. Also, down payments by customers have increased.
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Bankers are also worried on the fiscal health of dealers in both car and two-wheeler segments, as they feel that some loans are likely to turn bad over the next few months. Already, banks have been reducing loans to this segment for the past quarter. The two-wheeler segment could see a 50 basis point hike in interest rates. However, bankers are also waiting to see how manufacturers are reacting to the current rate hike. Already rates in this segment are one of the highest at between 24-26%. Delinquencies in this segment have seen a sharp rise with the result that some of the financiers have already gone out of the segment.
In the personal loan segment, rates are already hovering around 19%. This segment is supposed to be a bit more inelastic in demand compared with other retail loans. Bankers are likely to hike rates in this segment by a maximum of 50 basis points.
Moreover, defaults are rising even among the higher end of the portfolio. Most bankers concurred that demand for loans have come down by around 15% in July as higher rates have started affecting demand.
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NPAs, which were at around 4%, have now risen in some cases to as high as around 7%. Most banks and non-baking finance companies have already adopted a slower growth in this product because of the rising bad loans. Most banks are also likely to increase rates on other secured products like loans against securities. Currently, interest rates in this segment ranges between 12.5% and 13.5%. Rates in this category are also likely to be hiked by, at least, 50 basis points.
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One area where rates are unlikely to go up further is credit cards. At present banks charge anywhere between 2.8% and 3.2% per month on credit card outstanding. Despite high rates, most banks are booking losses on this product even as bad loans have gone up considerably.Download
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