Importance of Consumer Credit In India
The following best explains the importance of consumer credit in India.
(a) Increasing Risk in Corporate Lending increasing risk in corporate lending, banks are forced to opt for an alternative spot for finance. The supernormal growth in retail finance has made it the primary driver of banks‘ asset books. It is expected to capture 40-50% of banks‘incremental lending by end of financial year 2004. Banks share in incremental retail advances (%) FY2003 FY2004 State Bank of India 39.1 40.4 HDFC Bank 39.1 62.9 ICICI Bank 209.7 174.1 Corporation Bank 72.0 64.3 Andhra Bank, 48.8 Union Bank of India 23.5 21.3 Punjab Nation Bank 0 0 ING Vysya Bank 28.1 22.8 Oriental Bank of Commerce 107.0 66.2 Bank of Baroda 75.3 29.4 Canara Bank 25.6 35.7
(b) Housing Loans Housing loans have been the product of choice for state-owned banks because of their attractive profitability, low risk weight-low delinquency history, and the ease of processing loans. All the state-owned banks have recorded explosive growth in their mortgages; this has vastly expanded the market.
(c) Consumer Durables Banks have entered almost all the segments in retail finance. They are gaining share from NBFCs. Private Banks have started offering loans for low-ticket items like consumer durables and two-wheelers, besides personal loans. Some schemes of some banks are given below:
•SBI has struck a preferred-financier arrangement with carmaker Maruti, and now markets these can loans from more than 2,000 branches. The bank has also tied up with Bajaj Auto and TVS Motors to finance two-wheelers.
•SBI is offering 3-year two-wheeler loans at an interest rate of 10% across all sales outlets of these companies. These alliances are significant, because they have extended the availability of car and two-wheeler finance to second-and third-tier towns.
•Axis Bank has tied up with Ford Credit as a preferred financer for Ford cars.
•Punjab National Bank has struck a similar arrangement with Hyundai.
• More such alliances are expected between carmakers and state-owned banks. These arrangements will drive strong growth in car finance market over the years to come.
(d) Reduction in Interest Rates Falling interest rates, coupled with increasing loan durations, have substantially reduced the EMIs on retail loans, thereby making them affordable to more people than ever before.