Consumer durables loans saw a spurt of 52.7% in February 2014 from the year-ago period as buyers reduced their credit card spends, taking loans to finance their purchase instead.
Lending to this segment for February 2014 stood at R12,400 crore against R8,100 crore in the same period last year, RBI data show. It saw a y-o-y growth of 15.3% in February 2013.
Banks’ retail loan book during the period grew to R10.15 lakh crore, a rise of 16.5%. Advances to consumer durables comprise just 1.2% of the total retail loan portfolio.
On the other hand, outstanding on credit cards saw a negative growth of 0.4% to R25,400 crore as on February 2014 against R25,500 crore in the same period last year. The segment saw a 23.7% growth (y-o-y) in February 2013.
Oriental Bank of Commerce CMD SL Bansal said: “Consumers are moving away from credit cards as banks charge hefty penalties on defaults. The fine is much lower in case of retail loan defaults.” Also, consumer goods dealers are pushing their products aggressively, which makes a customer go for such loans, he said. Such lending largely comprises small-ticket loans of two years and is used to finance purchase of consumer durables like television, refrigerator and washing machines.
However, certain lenders, such as the Central Bank of India and Corporation Bank, are not too keen on pushing such loans. Central Bank executive director BK Divakara said: “It is extremely difficult to recover such loans as they are not secured like home loans. When a customer defaults or stops paying, the banks find no value in the products purchased by the consumer with the help of the loan.”
In October last year, the finance ministry had decided to infuse extra capital into banks, over and above the R14,000 crore provided in the previous Budget to enable them to lend to borrowers in selected sectors, such as two-wheelers and consumer durables, at lower rates to stimulate demand.