Banks’ high retail loan book due to securitisation by NBFCs, not actual credit demand: Crisil

The agency said this will end the apparent dichotomy between slowdown in consumption growth despite the jump in retail credit.

Banks’ retail credit growth is up due to higher reliance on securitisation by liquidity starved non-banking lenders, and does not represent a higher credit pick-up by small borrowers, says a report. Adjusted for the securitisation, which is when a lender transfers future receivables to another one, retail credit growth will come at a lower 12 percent for the first half of the fiscal, as against 16.6 percent classified as “retail credit growth”, Crisil said in a report on Tuesday.

The agency said this will end the apparent dichotomy between slowdown in consumption growth despite the jump in retail credit. The trend has been more visible during the past 18 months, since the start of the NBFC troubles following the collapse of IL&FS last year, when securitisation increased, the agency said. The adjusted retail credit growth numbers, net of securitisation, for FY19 has also gone down to 12 percent from 16 percent in FY18, it said, pointing out that securitisation volumes have soared.

“Securitisation transactions involving retail loan receivables get classified as retail bank credit,” the note explained, adding lending for securitisation darted up to 31 percent of incremental bank credit last fiscal, compared with 17 percent in 2017 and 11 percent in 2015. The results of the adjusted credit growth, by deducting the securitisation volumes, gives a fair picture of the situation on the ground, it said.

“That corroborates with the situation on the ground -sales of automobiles have been plummeting, while those of consumer durables, housing and several other consumer-oriented sectors have been sluggish,” it said. The note also said the slowdown in retail credit growth reflects both macroeconomic challenges which have constrained loan demand and fewer loan sanctions by banks because of risk aversion.