Credit growth in India is slowing down a bit, but the mix of loans is changing. Secured retail loans and loans to small and medium businesses (MSMEs) are now the main drivers.
Credit Growth Stabilises, Secured Lending Takes Lead
Overall loan expansion is holding steady, yet most of the new money is coming from secured products – loans backed by collateral or guarantees.
PSU Banks Regain Share in MSME Loans
Public sector banks (PSUs) have taken back the lead in MSME lending over the past six to nine months. Their advantage comes from:
- Fast approval times of just 2‑4 days
- Wider use of credit‑guarantee structures
- Pricing linked to repo rates, which narrows the cost gap with private lenders
This push is backed by strong government focus on MSME financing, allowing PSUs to win market share in working‑capital and small‑business loans.
Private Banks Stay Selective
Private banks are being more cautious. They prefer hybrid loan structures that combine partial guarantees with collateral, aiming for better risk‑adjusted returns.
Unsecured Business Lending Slows
Unsecured loans to businesses are growing slower – about 10‑20% now, down from the 30‑40% pace seen earlier. Pricing has corrected sharply, and lenders are tightening standards because of stress in sectors like agriculture‑linked commodities and FMCG distribution.
Housing and Real Estate Loans Hold Up
Home‑loan growth has cooled from its peak, but disbursements are picking up, led by large developers and redevelopment projects. Smaller developers show some stress, but it remains limited and not a systemic risk. PSU banks are becoming more active in home‑loan markets, especially in Tier‑2 and Tier‑3 cities, thanks to competitive pricing and faster processing.
Retail Unsecured Products Show Early Signs of Stabilisation
Personal loans and credit‑card portfolios are moving past the worst of the stress. Early‑stage delinquencies are leveling off, though overall default rates stay higher than normal. Growth is now coming mainly from existing customers, salaried borrowers, and pre‑approved offers.
Looking Ahead: A More Sustainable Credit Cycle
The credit cycle appears to be shifting toward a steadier, execution‑driven phase. Expect overall loan growth to stay flat, supported by secured retail and PSU‑driven MSME lending, while unsecured business credit remains under close watch.
Bank Picks: ICICI Bank and AU Small Finance Bank
ICICI Bank – Buy, Target ₹1,700
ICICI Bank shows solid risk management, diversified loan books, and steady margins. Its focus on business banking and retail growth, backed by strong distribution and technology investments, is improving efficiency. Recent moves like the launch of ICICI Prudential Asset Management and revised credit‑card fees aim to boost fee income and adapt to digital usage.
AU Small Finance Bank – Buy, Target ₹1,100
AU Small Finance Bank is positioned for continued growth thanks to expanding margins, controlled credit costs, and better operating efficiency. The bank’s balance sheet is strong, with healthy retail and commercial traction and an improving CASA mix. Forecasts show a ~30% PAT CAGR through FY28, driven by margin improvement and normalising credit costs.
Disclaimer
Remember, this is perspective, not a prediction. Do your own research and consider your personal financial situation before making any investment decisions.