India’s Covid-hit economy has hurt consumer demand and banks are reporting slower retail loan growth in the fiscal first quarter.

Once the flagship product of most banks, retail loans are losing steam as unemployment rates climb and uncertainty looms over jobs. Two banks have in their early updates for the quarter ended June 2021 shown a shrinkage in their retail loan book, indicating an overall trend on how the second wave of coronavirus has damaged the economy.

HDFC Bank, India’s largest private sector bank, has posted a sequential drop in its retail loan book while Yes Bank has seen lower loan disbursements. In case of HDFC Bank, retail loans slowed 1% sequentially at the end of the fiscal first quarter while its corporate credit grew 1.5%. However, retail loans grew 9% in comparison to its year-ago period.

“System retail loans have contracted by 1% over April and May and in that context HDFC Bank’s 0.5% QoQ looks reasonable given the cards ban. Retail disbursements grew by +2x YoY and was down 30% QoQ,” CLSA said.

Though Yes Bank reported a 1.8% drop in the growth of its overall loans sequentially, its retail credit growth fell sharply by 34.86%. The bank said that its retail loans grew by Rs 5,099 crore in the quarter ended June 2021 while in the preceding quarter the growth was Rs 7,828 crore. The deposits of the bank grew 0.2% sequentially to Rs 1,63,295 crore and 39.1% higher than the year-ago period.

In a report on HDFC Bank, CLSA said: “A slower-than-expected pickup in India’s economic growth amid the ongoing Covid-19 outbreak could affect demand for retail loans, as well as margins and asset quality. HDFC Bank faces relatively low risk in its corporate exposure as it focuses on higher-rated companies and less on infrastructure loans. However, higher exposure in unsecured retail and small and medium-sized enterprises credit may pose risk in a difficult macroeconomic environment resulting from Covid-19 disruption.”

HDFC Bank’s commercial and rural banking loans grew by around 25% over 30 June 2020 and around 4% over 31 March 2021. Other wholesale loans grew by around 10.5% over 30 June 2020 and around 1.5% over 31 March 2021.

The bank’s advances aggregated to approximately Rs 11,47,500 crore as of 30 June 2021, a growth of around 14.4% over Rs 10,03,300 crore as of 30 June 2020 and a growth of around 1.3% over Rs 11,32,800 crore as of 31 March 2021.

The bank’s non-retail loans grew by 2.1% QoQ (17% YoY) and has been the key growth driver in the last 18 months. “With lifting of the lockdowns, retail growth should pick up going forward but corporate deleveraging and ban on credit cards remain key growth constraints. While there has been news flow about corporate deleveraging and even HDFC Bank’s corporate banking head has pointed out repayments from large corporates, HDFC Bank has been able to maintain positive loan growth in non-retail loans. HDFC Bank’s non-individual loans has grown by 2x in last 3 years,” CLSA said in the report.

The bank’s retail deposits grew by around 16.5% over 30 June 2020 and around 3.5% over 31 March 2021. Wholesale deposits remained stable as compared to 30 June 2020, and were lower by around 10% as compared to 31 March 2021.