Indian appetite for loans undiminished by higher costs
Monday, 25 June 2007
BANGALORE, India, June 24 (AFP): Vishal Virani, an entrepreneur who supplies storage shelves to automaker Toyota, plans to borrow almost 100,000 dollars to buy an apartment in the southern Indian city of Bangalore.
The 33-year-old is paying back two other bank loans, but says he and his wife, who works as a company executive, have exhausted neither their credit limit nor an appetite for risk.
"With our cash flow, we can easily afford another loan," said Virani. "This is the right time to buy an apartment because property prices are down and builders are willing to offer discounts. Interest rates are bound to decline."
Young, double-income consumers like the Viranis, whose only dependent is an 18-month-old son, are fuelling a loan market that has grown at an annual rate of almost 30 per cent in the past five years, undeterred by rising borrowing costs.
The Reserve Bank of India has twice raised short-term lending rates in 2007, by a quarter of a percentage point each time to 7.75 per cent-the highest level in more than four years -- to cool loan growth and tame inflation.
Yet consumer credit appetite remains undiminished in an economy that grew at a record pace of 9.4 per cent in the fiscal year that ended March, bankers say.
"The urge to create an asset is very strong in the present generation of Indians," said VS Reddy, general manager at Bangalore-based Canara Bank, India's fourth-largest lender.
"Whether it be an apartment, a car or an appliance, people don't want to wait to acquire it."
Banks are raising capital to feed a consumer loan appetite that is in turn boosting corporate credit demand as companies expand production. Manufacturing is growing 12 per cent, the services sector at 13 per cent.
The 33-year-old is paying back two other bank loans, but says he and his wife, who works as a company executive, have exhausted neither their credit limit nor an appetite for risk.
"With our cash flow, we can easily afford another loan," said Virani. "This is the right time to buy an apartment because property prices are down and builders are willing to offer discounts. Interest rates are bound to decline."
Young, double-income consumers like the Viranis, whose only dependent is an 18-month-old son, are fuelling a loan market that has grown at an annual rate of almost 30 per cent in the past five years, undeterred by rising borrowing costs.
The Reserve Bank of India has twice raised short-term lending rates in 2007, by a quarter of a percentage point each time to 7.75 per cent-the highest level in more than four years -- to cool loan growth and tame inflation.
Yet consumer credit appetite remains undiminished in an economy that grew at a record pace of 9.4 per cent in the fiscal year that ended March, bankers say.
"The urge to create an asset is very strong in the present generation of Indians," said VS Reddy, general manager at Bangalore-based Canara Bank, India's fourth-largest lender.
"Whether it be an apartment, a car or an appliance, people don't want to wait to acquire it."
Banks are raising capital to feed a consumer loan appetite that is in turn boosting corporate credit demand as companies expand production. Manufacturing is growing 12 per cent, the services sector at 13 per cent.