With restrictions imposed to curb the spread of COVID-19 pandemic easing and economic activity seeing a gradual improvement, the demand for personal loans is on an upward trajectory. Housing, vehicle, credit card and personal loans for the salaried too have seen a rebound in July. Home loans grew 12.3 per cent year-on-year (y-o-y) and stood at around Rs 13.48 trillion at the end of July, data released by the RBI (Reserve Bank of India) showed.
Personal loans increased 11.2 per cent y-o-y on an overall basis to end the month at Rs 25.31 trillion. The month-on-month (m-o-m) improvement of 1.6 per cent in the total personal loan disbursals in July was the highest since February and was better than the marginal improvement of 0.5 per cent seen in June.
Salaried drive personal loan growth
The growth was led by personal loans given to the salaried and individuals with regular incomes, which surged 13.3 per cent y-o-y to around Rs 7.22 trillion at the end of July, the quickest pace in the category, and was followed by housing loans, RBI data showed.
Vehicle loans advanced 8.1 per cent y-o-y to about Rs 2.18 trillion. Credit card debt growth recovered significantly—from a drop of 0.8 per cent y-o-y in May to a growth of 7.9 per cent, to stand at Rs 1.01 trillion in July. There was a decline of 10.3 per cent m-o-m in April following the nationwide lockdown, but a 3.9 per cent m-o-m growth in July.
“There has been an uptick in demand for both personal and home loans,” says Raj Khosla, managing director, MyMoneyMantra.com. “People are in need of liquidity in the wake of the pandemic,” he says referring to the rise in personal loan applications from salaried individuals.
”As the pandemic-related lockdown is getting partly relaxed, we see that the demand for salaried personal loans (SPL) is increasing. Almost after four months of lockdown, we are observing improvement in sentiment and hence the demand,” says Sumit Bali, president and head, Retail Banking, Axis Bank.
With work-from-home becoming common in businesses such as IT (information technology), the salaried are taking personal loans to buy things that are essential for such a work environment. “Employees in the IT sector, which has not been impacted by the pandemic much, are taking loans for buying gadgets and home renovation,” says Gaurav Gupta, co-founder and CEO, MyLoanCare.in, an online marketplace for loans.
Low interest rates, a trigger
“Low interest rates and low pricing are driving the growth in home loans,” Khosla says. The affordable housing segment is propelling the demand for home loans, Gupta says. “There is a lot of real estate supply in the affordable housing segment, which has not been impacted by the pandemic,” he says.
Says Adhil Shetty, CEO, BankBazaar, “While the uncertainties and confusion of the lockdown caused a slump in the overall demand for credit during that period, this has been slowly recovering over the last few months as sectors and businesses are adjusting to the new normal.”
“We do feel the momentum will continue. We are soon entering festive period and that traditionally has been a strong season for consumption spends and therefore the demand will continue,” Bali says.
“It is expected that post moratorium, once there is more clarity on loan restructuring, the growth will pick up again,” says Shetty.
“Also, we do expect economic recovery to continue from the low GDP numbers of Q1 and register strong Q-o-Q (quarter-on-quarter) growth which will lead to increase in demand for SPL,” Bali says. “We expect to reach pre-COVID levels by December this year,” he stated.
While there was an annual incremental credit flow of about Rs 5.7 trillion in July, the share of personal loans in the overall loan matrix rose from 41.5 per cent in June to 44.6 per cent during the month. The share of industries declined from 11.1 per cent to 4 per cent while that of agriculture rose from 4.8 per cent to 10.5 per cent.
(The writer is a freelancer)