Banks have been directed to focus on increasing retail lending — mainly car, home and appliance loans — following low instances of default from this segment amid rising interest rates.
Credit demand from this segment has remained weak in the first two quarters of the current fiscal with consumers putting off planned purchases due to the current economic slowdown.Finance minister P Chidambaram has asked banks to raise retail lending while looking at ways to reduce interest rates. The government is keeping a close watch on banks and the overall credit pattern, said sources.
“Though interest rates have been firming up in the last one year, we have seen negligible cases of default in this segment contrary to apprehensions,” Indira Padmini, general manager, retail banking and marketing, Indian Overseas Bank told Hindustan Times.
In 2011-12, non-food credit including loans towards housing, automobiles and consumer durables among others, increased by 17% against 20.6% in 2010-11. Though growth in retail credit in the first two quarters has been moderate, banks are chalking out ways including reduction in interest rates to boost the segment.
While defaults from the retail segment have not been alarming, banks have witnessed a surge in the level of bad assets, thanks to corporate defaults.
“The rise in non-performing assets is still not a cause for concern as it is due to a few big giants failing to repay but it has not become the order of the day,” said a senior executive in a government bank.
“We expect the credit appetite to pick up in the last two quarters of this fiscal and the early trends have been encouraging,” said TM Bhasin, chairman and managing director, Indian Bank.