Retail trade credit rises amid slowdown in corporate loans

May 10, 2023 – 11:56 am

Gayatri Nayak & Sagar Malviya, ET Bureau Apr 8, 2013, 05.00AM IST

(Retail trade credit has…)

MUMBAI: Retail trade credit has emerged as the fastest-growing segment of lending for commercial banks amid a slowdown in corporate loans as piling inventories force retailers to extend their credit cycles with banks.

Loans to retail traders rose 29.7% year-on-year as of February end compared with only 12.6% a year ago, according to the latest RBI data. The total loan portfolio amounted to Rs 1.2 lakh crore, up from Rs 92, 500 crore a year ago.

This segment has been the fastest growing in a year when loans to large business houses have slipped and the retail loan portfolio of banks has remained flat. Even as there are fears of loans to corporates and large infrastructure projects turning bad, these small-ticket loans are perceived to be safe as they are well collateralised.

"Small businesses and retail trade are not necessarily affected by a slowdown, " said M Narendra, chairman and managing director, Indian Overseas Bank. "Many of them also have cash in hand and, therefore, lending risks are minimum.

Besides, lending cycles are short against collaterals of stocks." Traders say retailers have been delaying payments as theirs stocks are not getting sold because of which their cash flows are impacted. "While we supply our merchandise on at least 180 days' credit, most retailers have been delaying payment, " said Chirag Simaria, proprietor of Maitri Garments.

"Also, we have to invest substantially to meet the quality standards of large retailers. These factors have increased our lending quantum from banks." This is reflective of the slowdown in consumer demand in the economy.

The economy grew 4.5% during the quarter ended December 2012, the slowest in 15 quarters. At the same time, consumer inflation has remained around the double-digits levels for quiet some time now. Retail trade credits are very small-sized loans where the collateral is the stocks of goods and services.

Such loans are commonly availed of by traders in the FMCG and textiles business or even the neighbourhood kirana stores. The sanctions are within the discretion of the branch manager. The limits often linked to the stock turnover could range anywhere between Rs 5 lakh and Rs 1 crore.




So I used to work at a store in the mall. While I worked there I bought a belt and got my employee discount of 30%. The belt broke after I left the job, fine they have a repair dept., they sent it in for repair. They counldn't fix it so they called and told me they would give me a merch. credit for the belt. I ended up buying a different belt and decided to get earings w/the merch credit instead. The earlings were the same retail price of the belt. I expected a straight across trade but was told that have to now pay the full price of the earings.

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