Worries over liquidity to boost credit card, personal loans: CIBIL

Unlike the slowdown a decade ago, demand for credit cards and personal loans will remain as consumers look to secure funds to bridge gaps in personal finance.

Demand for secured loans — home and auto loans — is expected to see a pronounced dip in the coming quarters as consumers look to stay liquid during the Covid-19 crisis. Products that provide liquidity like credit cards and personal loans will see moderate demand, according to credit information bureau CIBIL.

Unlike the slowdown a decade ago, demand for credit cards and personal loans will remain as consumers look to secure funds to bridge gaps in personal finance. Their availability and market penetration are higher than earlier.

The prevalence of fintech firms has also introduced new, flexible product structures and enhanced access via digital channels. Equally, because of the nature of the Covid-19 crisis, there has been an increase in the need for digital payments, which credit cards facilitate.

CIBIL said consumers are reducing discretionary spending, and they will cut down on travel. The demand for secured lending products like auto and home loans will likely remain weak for some time, it added. The lockdowns have had far-reaching implications. Consumers’ finances have changed dramatically, with many seeing pay cuts and lay-offs. There has been a sharp drop in consumer sentiment and consumption demand and spending have taken significant hits.

Abhay Kelkar, vice-president (research and consulting) TransUnion CIBIL, said the social, financial and economic impact of Covid-19 will be far reaching and will lead to a realignment of the retail credit market.

India’s retail credit market is still growing at a much higher rate than most others around the world. However, this is a global crisis and no economy is immune, Kelkar said.

SBI cuts MCLR for ninth straight month making auto, home loans cheaper

The bank also reduced interest rate on term deposits - retail and bulk - by 10-50 basis points (bps) across various tenors.

India's largest lender State Bank of India (SBI) has decided to reduce its Marginal Cost of Funds based Lending Rate (MCLR) by five bps across all tenors. The one year MCLR comes down to 7.85 per cent per annum (p.a) from 7.90 per cent per annum with effect from 10th February 2020. This is the ninth consecutive cut in MCLR in FY 2019-20, SBI said in statement. This will lead to a reduction in home and auto loan rates.

The lender also decided to slash interest rate on term deposits – retail and bulk – by 10-50 basis points (bps) across various tenors as it is sitting on a pool of surplus funds. The revised rates will come into effect from February 10, 2020.

The bank's credit grew by 6.8 per cent to Rs 23, 01, 669 crore in 12 months ended December 2019, driven by Retail-Personal Advances which clocked a growth of 17.49 per cent.

SBI chairman Rajnish Kumar in January 2020 had said, at the start of year bank had given guidance of 10-12 per cent growth in advances in FY20. But will be difficult to reach 10 per cent mark, reflecting weak demand for corporate credit.

Referring to resource position, SBI in a statement said, in view of surplus liquidity in the system, bank will realign its interest rate on Retail Term Deposits (less than Rs two crore) and Bulk Term Deposits (Rs two and above) February 10, 2020.

Its deposits rose by 9.9 per cent to Rs 31,11,229 crore in 12 months ended December 2019. The share of low cost deposits – current account and savings account – in total deposits declined by 51 basis points to 44.72 per cent in December 2019 from 45.23 per cent a year ago.

According to Reserve Bank of India, overall liquidity in the system remained in surplus in December 2019 and January 2020.

Average daily net absorption under the liquidity adjustment facility (LAF) amounted to Rs 2.61 trillion in December 2019.