Festive season fails to cheer banks this year

The festival season this year has failed to bring in good news for banks. Bankers believe consumers' reluctance to buy has made this season worse than even the previous two years, when lenders had witnessed tepid demand.  

Jairam Sridharan, head of consumer lending & payments at Axis Bank, says this festival season has been one of the worst for the banking sector.  

"Demand this season has been very muted. We have seen enquiries coming for home and car loans but these have not been converted.

In fact, car sales were down in the month of October, despite Dhanteras and Diwali being in the month - that is unusual. Similarly, real estate inventories have also shot up across the country."  

In October, car sales dropped 2.55 per cent, as demand for automobile stayed in the slow lane despite festival season.

According to data released by the Society of Indian Automobile Manufacturers (Siam), domestic car sales in the month stood at 159,036 units, against 163,199 in October 2013.  

Also, real estate inventory shot up and continued to rise despite a slew of offers being given by builders and banks.

According to a survey by Liases Foras, a property consultancy firm, inventory in the Mumbai Metropolitan Region has shot up to 50 months, and that in the National Capital Region has hit 83 months.  

Other bankers also agree that growth this festival season has been lower than the previous two years. "Credit offtake has been poor and we have not seen any significant demand during this festival season.

The growth this year has been lower than last year, in the retail segment across industry," said A Surendran, head of retail banking at Federal Bank.  

Punjab National Bank Executive Director Ram Sangapure said credit growth during the festival season this year was expected to be 25 per cent, but a pick-up did not happen.

"This year, growth is much lower than 25 per cent. It will be in double digits but significantly lower."  

Pralay Mondal, senior group president (retail & business banking), YES Bank, said though there was positive sentiment, structural changes were yet to take place. He explained interest rates continued to remain high and despite an inventory build-up in segments like housing, prices did not correct.

As a result, consumers remained in a wait-and-watch mode and postponed their buying decision.  

At the start of the festival season, bankers were hopeful that credit growth this time would be better than last year. But they agreed that a after better September, demand nosedived in October.  

Over the past year (up to October 17), credit grew 11.17 per cent - to Rs 62, 72,621 crore from Rs 56, 41, 910 crore a year ago - according to Reserve Bank of India data. Bankers believe this is worrisome, as corporate demand continues to be sluggish.  

"Corporate demand has been muted in the past few quarters and is expected to remain so in the next couple of quarters. Growth from the retail segment has also bee lacklustre and if it continues to be so, at a time when corporate offtake is low, the next few quarters could be a cause for concern," said Sridharan.  

Muted demand

Dry spell: Lenders have seen tepid demand this season, as consumers have been reluctant to make purchases

Car sales: Down 2.55% in October

Real estate: Inventory has risen despite a slew of offers from builders and banks

Corporate weakness: Bankers are worried about corporate demand continuing to be sluggish

Photograph: Amit Dave/Reuters