If you are looking for a loan to buy a consumer durable this festive season, banks may not be the best place to seek them.
With banks shying away from disbursing loans for buying home appliances and consumer electronic goods, thanks to a slowing economy turning such loans into bad loans, non-banking finance companies (NBFCs) are cashing in on the opportunity.
Consumer durable loans by banks have declined 20% in the first half of the current fiscal, according to Reserve Bank of India (RBI) data.
Outstanding consumer durable loans fell to Rs. 7,000 crore as on September 21, 2012 against Rs. 8,800 crore as on March 23, 2012.
On a year-on-year basis they fell from Rs. 8,500 crore as on September 23, 2011, down 17%.
Consumer durable loans are unsecured loans that not backed by any collateral. Since these also carry higher interest than other loans, the chances of them turning into bad loans are higher.
"Banks have become cautious regarding consumer durable loans because of the rise in bad loans," said Arvind Bopte, general manager, retail and third party products, Union Bank of India.
With the economic slowdown impacting the repayment abilities of individuals and companies, banks' non-performing assets (NPAs) or bad loans rose to 1.28% in 2011-12 from 0.97% in 2010-11.
Goods bought with loans account for around 10% of total consumer durable sales.
"The prices of electronic goods have been falling continuously in the last few years, which has obviated the need for customer to buy with bank finance," said a senior bank official.
But NBFCs are clear gainers. "The last six months have been great for us," said Devang Mody, president, consumer business, Bajaj Finserv Lending. "This summer we have witnessed an year-on-year growth of over 50% (in consumer durable lending)."
NBFCs even offer zero-finance facilities for durables -in which case they make money not from interest payments but from sales-linked payments from manufacturers.