Festival season push drives personal loan growth to 30%

Festival season push drives personal loan growth to 30%

High festive demand in October and November drove disbursal of personal loans from banks. Personal loans disbursed by lenders rose 30% year on year to reach Rupees 50.57 trillion as of November 17, according to the Reserve Bank of India (RBI) data. This impressive growth in advances will help lenders post better third-quarter earnings, say experts.

“Both personal loans and consumer durable loans rise during the festive seasons. However, the spike in consumer durable loans is more than personal loans, because individuals like to buy home appliances and digital devices during the festive season,” Virat Diwanji, group president and head of consumer banking at Kotak Mahindra Bank, told FE.

Customers tend to align their plans to purchase electronic goods and home appliances with festive season because companies launch various deals offering big discounts during the period. Consumer durable loans of banks have reached Rupees 23,595 crore as of November 17, recording a growth of around 11%, showed RBI data.

“Banks usually witness a high demand for home, auto and personal loans in the third quarter due to festive season. The third quarter has always been full of actions in terms of retail loans while the first two quarters are relatively dull,” said the banking analyst at a brokerage firm. “Strong festive demand for retail loans will help banks post higher earnings in the third quarter,” he added.

High growth in personal loans has come amid RBI’s concerns over unsecured loans of banks and NBFCs. The RBI, in November last year, increased the risk weights on unsecured loans. The move has resulted in higher capital requirements for banks and NBFCs, raising the cost of funds for borrowers. Analyst expect the growth in personal loans to moderate in the current calendar year due to the RBI’s decision to hike risk weights.