Why festive season failed to cheer bankers

This year’s festival season has failed to cheer banks, thanks to reluctance of the consumer to spend money.

According to lenders, this season was the “worst” compared to the last two years. Jairam Sridharan, head, consumer lending and payments at Axis Bank, says, “Demand in this season has been really muted. We have seen enquiries come in for home, cars, etc. but these enquiries are not converting (into loans) yet.

Car sales are down in October when you had both Dhanteras and Diwali in the same month, something that is very unusual. Similarly, inventories for home have also shot up across the country.”

Car sales dipped by 2.55 per cent in October, as the festival season demand for auto remained in slow lane.

According to the data released by Society of Indian Automobile Manufacturers (SIAM), domestic car sales in October this year stood at 159,036 units as compared to 163,199 units in the same month of 2013.

Even inventory in the real estate market has shot up and continues to rise, despite a slew of offers launched by builders and banks.

As per a survey by property consultancy firm, Liases Foras, inventory in the Mumbai Metropolitan Region has already shot up to 50 months and in the National Capital Region it has touched a whooping 83 months.

“Credit off-take has been poor and we have not seen any significant demand. The growth this year has been lower than that of last year across the industry in the retail segment,” said A Surendran, head-retail banking, Federal Bank.

Bankers were hopeful about a good business at the start of the season.

However, they agreed that even though September was a better month, the demand nosedived in October.

Ram Sangapure, executive director, Punjab National Bank, said the credit growth in the industry during the festival season was approximately 25 per cent but this year pick up has not happened.

“This year growth is much lower than 25 per cent. It will be in double digits but significantly lower.”

In the past one year, credit growth was up by 11.17 per cent in the period ended October 17, the bank credit was recorded at Rs 62,72,621 crore up from Rs 56,41,910 crore a year ago, according to the Reserve Bank of India data.

Pralay Mondal, senior group president (retail and business banking) — YES Bank, said even though there are lots of positive sentiments, structural changes are yet to take place.

He explained that interest rates continue to remain high and despite the build up in inventory in segments such as housing prices have not corrected.

As a result, consumers continue to be in a wait-and-watch mode and are postponing their buying decision.

Bankers believe this is more worrisome, as corporate demand continues to remain sluggish and it is the growth in the retail segment that had led to credit growth for the banks. “Corporate demand has been rather muted for the past few quarters and is expected to be so in the next couple of quarters.

But, now growth from the retail segment has also been slack and if it continues to be so at a time when even corporate off-take is low then the next few quarters can be a cause of concern,” said Sridharan.