Appliances loan at record high in metros

Consumer durable loan touches unseen high

• Massive demand for consumer durable resulted in fourfold increase in the consumer durable loans banks in metro cities.
• These loans have gone up from INR 6,061 crore in March 2019 to INR 25,654 crore in March 2024, reflecting a growth of 323%, according Reserve Bank of India (RBI) data.
• The ongoing government-led capex thrust, rural recovery, and focus on premiumisation are all likely to be contributors to the rally in the durables index.
• In rural, semi-urban and urban areas, such loans have witnessed growth of 55%, 84% and 124%, respectively, over the same period.
• Driven by a high demand, the share of metro and urban areas in total consumer durable loans expanded to 77% by the end of March this year, from 61% at the end of March 2019.
• Banks’ total consumer durable loans reached INR 40,432 crore as of March 2024, from INR 13,969 crore as of March 2019, showing a growth of 190% and that is unprecedented.
• The NSE Consumer Durables has jumped over 20%, with constituents like Dixon Tech, Crompton Greaves, Whirlpool and Voltas gaining the most.
• As the country battled an intense heatwave, the traction for room air conditioners, fans or air coolers has driven the shares of major consumer durable makers over 15% higher in the past month.
• Fan makers have also reported significant growth.
• Not only the summers, a stronger-than-forecasted monsoon will boost rural income, driving growth in the mass-end of the portfolios.
• So far, durables companies have been largely focused on the urban markets garnering less than 25% of their revenue from the rural markets but this time even the rural segment has seen a hike in purchase of items.

Regulators concerns

• Reserve Bank of India (RBI) observed the sharp rise in consumer durable and other unsecured loans and instantly increased its risk weights. RBI governor Shaktikanta Das said in the recent monetary policy that the central bank was closely monitoring the rise in unsecured retail loans to determine if additional measures are necessary to moderate this lending. Concerned by the unbridled growth in personal loans, 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.
• Experts say banks need to diversify and should not over-rely on a particular segment or territory to grow their business.
• Another industry expert elaborated the complexity. Ideally, the regulator considers two components when it looks at portfolio growth, the quality of portfolio growth and diversification of the portfolio. Diversifying the portfolio will help reduce the portfolio risk and address the systemic risk that the regulator is concerned about from a financial stability standpoint. Having said that, the asset quality will still be a significant concern and the regulator expects the segment to make substantial investments in technology and governance to ensure that the quality of underwriting standards is not diluted and continues to remain robust.

Editor’s Note