Bankers' Sentiment on Lending Improves: Loan Demand to Rise in India

With the outbreak of pandemic, many businesses had to stop their services which led to plunge in economic activities and contraction in loan demand across multiple sectors during April-June 2020. 

The significant reduction in loan demand dampened the sentiment among Indian lenders too, as a consequence.

As the gradual unlocking process began in the first week of June 2020, thereafter economic activities started gaining momentum. The recent RBI survey on banking sentiments unveiled that the demand for loans is expected to rise.

The good news is banks and NBFCs in India are getting their confidence back to lend.

Here are a few highlights, which will help you to understand the lending scenario in India

• The RBI report unveiled that personal loans, which were most severely hit during the period, have bounced back. The agriculture and personal loan segments have always been in the positive terrain indicating better loan terms and conditions in these sectors.

• The sentiments on loan terms and conditions for the services sector too, indicated easing, barring the assessment during the lock-down quarter, it added. Interestingly, digital transactions have also picked up pace recently.

• Now banks are more optimistic about a rebound in retail credit growth, which was the most severely hit by the pandemic

• Also, banking investors have shared this confidence, which is evident from the upgrades in earnings expectations by analysts. While the stock prices of banks have rallied due to anticipation of healthier balance sheets ahead.

While the Indian economy continues to record improvements in employment rate too!

According to an Employment Outlook Report for Q3:2020-21, large and medium-size businesses continued to lead in the overall intent to hire; however, it was small size businesses that have recorded the most significant growth.

• The lending rates of scheduled commercial banks have improved since March 2020, reflecting the combined impact of the liquidity surplus.

The RBI in a bulletin said that the Indian government has managed to contain human losses, ensured that financial systems and markets functioned normally, kept finance available and flowing, and reached out to the most vulnerable.

The result was that near-term financial stability risks have been contained.

“Economic contractions have started to ease, portfolio flows into emerging markets have recovered and hard currency bond issuances have strengthened for those with stronger credit ratings,” said the RBI governor Shaktikanta Das in a report.

• According to reports by various financial institutions, there will be recovery in economic activity and the derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15%-plus growth in FY22-25.

• While the consumer sentiment improved in the November 2020 round of the Reserve Bank’s consumer confidence survey (CCS) from an all-time low in the previous round.

In the time of the pandemic, financial savings of households and corporations have risen. They are now more confident about the year ahead, with expectations of improvement in the general economic situation, employment conditions, income scenario and spending. 

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