In a bid to stimulate retail lending amidst a slowdown in bank credit growth, major Indian banks are launching attractive festive season offers. This move comes as the overall bank credit growth has decelerated to 10% compared to 14% in the previous year.

Banking Giants Launch Festive Campaigns

HDFC Bank, one of India's leading private sector banks, has already kicked off its 'Festive Treats' campaign, coinciding with the celebrations of Onam and Ganesh Chaturthi. Not to be left behind, ICICI Bank is gearing up to introduce its 'Festive Bonanza' offers, while Axis Bank plans to roll out special discounts that align with the GST cuts effective from September 22. Other major players like State Bank of India (SBI) and Bank of Baroda are also joining the festive bandwagon with their own promotional offers.

Slowing Credit Growth Across Sectors

The banking sector is witnessing a broad-based slowdown in credit growth across various segments:

• Personal loans: Growth has moderated to 15% from 17% last year
• Vehicle loans and credit card outstanding: Showing deceleration
• Agriculture and allied activities: Credit growth has significantly dropped to 7% from 17%
• Industry credit growth: Declined to 6% from 8%
• Mortgage growth: Slowed to around 10% year-on-year, down from 18% previously

Retail Loans: A Strategic Focus

Banks are particularly keen on boosting retail lending during the festive season due to several factors:

1. Higher margins: Retail loans typically offer better profit margins for banks
2. Asset expansion: These loans help in expanding banking assets
3. Lower risk: Retail loans are generally considered to have a lower risk profile compared to large corporate loans

Festive Season: A Crucial Period

The festive season is viewed as a critical time for banks to revive credit demand. With consumer sentiment generally high during this period, banks are hoping that attractive offers and discounts will encourage borrowing and spending.

Looking Ahead

As the festive season unfolds, it remains to be seen how effective these promotional campaigns will be in boosting credit growth. The success of these initiatives could provide valuable insights into consumer sentiment and the overall health of the retail lending sector in India.

Banks will be closely monitoring the response to these offers, as it could set the tone for their lending strategies in the coming months. For consumers, this festive season might present an opportune time to avail of loans at potentially favorable terms, provided they carefully consider their financial situation and borrowing capacity.

The Indian banking sector is experiencing an unexpected trend as customers are canceling approved car loans in anticipation of upcoming Goods and Services Tax (GST) rate cuts, set to take effect on September 22. This development comes in the wake of the GST Council's decision to reduce tax rates on cars up to 1,200 cc from 28% to 18%.

Impact on Banks and Customers

Banks are receiving an influx of cancellation requests for approved car loans as customers weigh the benefits of waiting for the new GST rates. The potential savings from the tax reduction are proving to be more attractive than the loan cancellation charges, prompting many to defer their purchases.

In response to this situation, some banks have taken proactive measures:

• Waiving processing charges on vehicle loans during the monsoon period to attract customers
• Adjusting their loan strategies to accommodate the changing market dynamics

GST Rate Changes and Their Implications

The upcoming GST rate changes will have far-reaching effects on the automobile industry and consumers:

• Nearly 400 products, including cars, will see reduced prices
• The new 18% GST rate applies to cars up to 1,200 cc
• Larger vehicles will face a 40% GST rate
• Petrol and diesel cars up to 1,200 cc and 1,500 cc respectively will attract 18% GST
• The compensation cess on automobiles will be completely eliminated

Consumer Behavior and Market Trends

The impending tax cuts are influencing consumer behavior in several ways:

1. Loan cancellations: Customers are opting to cancel loans and wait for the rate cut, as cancellation charges are lower than potential savings.
2. Upgrading choices: Some customers are considering upgrading to better car versions in the 1,300 cc category, leveraging the 10% tax benefit.
3. Invoice timing: The new GST rate will only apply if car dealers haven't issued invoices to customers yet, creating a time-sensitive situation for both dealers and buyers.

Financial Implications for the Auto Industry

The GST rate change brings significant financial implications for the automotive sector:

• An estimated Rs 2,500.00 crore in accumulated compensation cess on auto companies' books will lapse on September 22.
• The current automobile GST structure of 28% plus a compensation cess of 1-22% (totaling 29-50% depending on vehicle type) will be simplified.

Conclusion

As the September 22 deadline approaches, the banking sector, automobile industry, and consumers are all adapting to the impending GST rate changes. Banks are navigating through loan cancellations while automakers and dealers prepare for a potential surge in demand. Consumers, meanwhile, are strategically timing their purchases to maximize savings, showcasing the significant impact of tax policy on market dynamics and consumer behavior.