Odd number

Consumer behaviour in the past 18 months throws up an unusual trend: spending has slowed, but borrowings remain robust.

Private consumption decelerated to 4.1% in the first half of this fiscal, nearly halving on-year.

Indeed, for a while now, indicators have been suggesting consumers have turned chary of spending.

Then why are they borrowing?

Data shows that in the first half, retail credit of banks grew 16.6%, or twice the speed of overall bank credit growth, and apace with the average growth of the past three years.

Of the incremental retail loans disbursed by banks, a chunk was to buy ‘pools’ of loan receivables of non-banks^*.

Such pools – or packages of receivables from retail loans disbursed by non-banks – are sold to investors. These are called retail securitisation transactions.

So why would that bump up retail credit numbers, especially since money wasn’t being on-lent to consumers?

Ah, blame the tyranny of taxonomy.

Securitisation transactions involving retail loan receivables get classified as retail bank credit.

And thereby hangs the tale.

With conventional sources of funding (bank loans, bonds and commercial paper) becoming difficult to access, many non-banks have been rushing to securitise their receivables, especially after a credit event in September 2018 (see Crisil’s press releases on securitisation volumes for last fiscal and the first half of this fiscal).

*Non-banking finance companies + housing finance companies