Wednesday, October 20, 2021
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Festive season should add cheer to BFSI plays, can be an opportunity for investors


The breakout of Covid 2.0 significantly disrupted India’s business activity in the initial months of FY22, especially during April-May’21. However, with gradual unlocking of the economy from July 2021 onwards, most lenders have witnessed an encouraging improvement in their collections, indicating faster economic recovery to normalization. Despite positive macro signals, loan growth has not picked up notably and continues to range between 6-6.5 per cent, primarily on account of large corporates dragging growth due to their deleveraging and subdued Capex.

On the other hand, retail and agricultural loans have exhibited better traction and are expected to continue showcasing positive momentum with the festival season around the corner. Lenders are expecting an uptick in retail loan demand, led by the fast-approaching festival season along with significant pent-up demand in the system as consumers held back on purchases during the lockdowns.

With Covid-19 cases falling in most parts of the country, we expect loan demand to be robust, specifically for travel, house improvement and purchase of white goods. Typically, the festive season is the time when Indians invest in new homes and purchase vehicles, supporting higher loan demand.

Anticipating demand surge for housing loans, lenders are opportunistically cutting down home loan rates by leveraging the RBI’s benign repo rates. With passing on the benefits of lower cost of funds, current home loans rates stand amongst the lowest in a decade with large banks such as SBI and Kotak offering home loans in the range of 6.5 per cent-6.7 per cent. However, these offers are typically designed to tap the festive demand and are not sustainable in the long run as interest rates harden and liquidity comes down.

Moreover, the government’s initiatives such as stamp duty cuts have further fuelled the demand, especially in the affordable housing category. With factors such as low interest rates and attractive payment plans, India’s housing finance segment is expected to witness a strong consumer demand during the festival season.

While processing charge waivers are common during this period, lenders are going the extra mile this year around by tying up with merchants and offering cash-backs and discounts to attract customers. This has opened up opportunities for fintechs as well. While the Covid-19 pandemic has rapidly shifted consumer behaviour to buying online and paying digitally, the increasing emergence of fintech players is further broadening the market size by targeting un-served and under-served populations through digital means.

Lenders have also turned upbeat on credit cards with the festival season approaching and are launching several new cards. And while they remain cautious on unsecured loans, they are making calculated bets on credit cards. Apart from the market leaders such as SBI Cards, HDFC Bank, ICICI Bank (who continue to launch new cards), banks that did not offer credit cards previously are also entering this extremely competitive market. Many lenders are targeting their existing customer base by leveraging the ready availability of their historical data.

India has traditionally been a debit card market. However, the growth in credit card issuance in the last decade has changed this narrative, and credit cards are being used prominently. Furthermore, financial institutions are offering various products and services such as Buy Now-Pay Later (BNPL), which have caught the fancy of many customers, especially the millennial population.

Public sector banks are fine-tuning their plans for the upcoming festive season and making the best use of their large customer base, instead of waiting for an outreach program to scale up credit off-take across the country. Besides retail and farm sectors, their thrust will also be on the export credit, in line with the global recovery.

With a lower number of Covid-19 infections, increasing vaccinations, and faster unlocking, we believe the economy will revive rather quickly as pent-up demand kicks in amidst the festive season. A spoke in the wheel would be any severe impact from Covid 3.0, but the risk looks manageable at present.

Lenders are well-placed with comfortable capital adequacy, high PCR, and a stronger balance sheet since the impact of the Covid-19 pandemic. So, investors can look at cashing in on the growth ahead of the festive season, as the best is yet to come for BFSI!


(Siji Philip is Senior Research Analyst at Axis Securities. Views are her own.)



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