Coronavirus effect: Personal loan contracts in first month of lockdown

As the lockdown caused by the novel coronavirus battered the Indian economy, banks saw lending fall to all sectors in April. The largest decline was in the personal loan segment, which was the key component of the bank’s loan growth over the year.

The non-food outstanding loan of planned commercial banks (SCBs) rose 7.3 percent year-on-year between March 27 and April 24, according to a report by the Center for Monitoring the Indian Economy (CMIE), up from 6.7 percent year-on-year increase recorded through the end of March. 57 percent of April’s decline was in the personal loan segment, which accounts for 27 percent of all non-food SCBs’ outstanding loans.

Personal loans declined by Rs. 62,861, or 2.5 per cent, from an outstanding balance of Rs. 25.53 lakh crore on March 27 to Rs. 24.9 lakh crore on April 24, 2020. The decline in personal loans includes home loans, Auto loans and credit cards, permanent consumer loans and educational loans, among others, came after rising more than 15 percent in the prior months. The deceleration was largely due to the collapse in home loan growth (including housing in the priority sector), which slowed further to 13.9 percent in April 2020. Home loan growth has slowed since November 2019, the CMIE report said.

“After more than two years, incremental home loans turned negative in April 2020, indicating that home loans had declined so much that they remained below repayments throughout the month,” said Janaki Samant, who wrote the article .

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According to CMIE, home loans make up more than half of all personal loans, while vehicle loans and outstanding credit cards are the other two relatively larger personal loans. Auto loans declined in April compared to March. The drop is larger than in April 2019, he added.

The biggest slowdown was reported in credit card outstandings, which fell by Rs 11,100 crore in April. Annual growth slowed to 4.8 percent in April after rising 22 to 33 percent in the previous months. Other personal loans also saw a very sharp drop in April, the CMIE said.

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Apart from personal loans, the industrial and service sectors suffered a much smaller damage of Rs 20,800 crore each. The impact on industry was mainly borne by micro and small industries whose outstanding loans fell by Rs 23,500 crore. On the contrary, big industry saw credit expansion of Rs 8,800 crore in April.

In terms of annual growth, medium-sized industries saw a 6.4 percent decline in loans, and micro and small industries saw a 2.3 percent decline in loans. But loans to big industries rose 2.7 percent, the CMIE report added.

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