CIBIL Explains The Reasons Behind India’s Soaring Personal Loan Growth
A customer counts Indian rupee banknotes at the Mayuresh Watches and Traders watch and mobile phone store in the Byculla area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

CIBIL Explains The Reasons Behind India’s Soaring Personal Loan Growth

A weak economy has weighed on growth in credit to most segments. But not on personal loans and amounts outstanding on credit cards.

While overall consumer credit growth declined for the sixth straight quarter, “consumption loans” continued to grow, according to the latest credit trends report from credit bureau TransUnion CIBIL.

For instance, credit card outstanding grew at 40.7 percent in the third quarter of calendar year 2019 compared with 31.7 percent a year ago. Personal loans grew at 28 percent compared with 33.5 percent in the same period last year. The volume of origination in the personal loan category soared 134 percent year-on-year.

Overall, the share of consumption products to total balances originated increased to 31.2 percent in third quarter of 2019 from 25.1 percent in the year-ago period, CIBIL said.

Also read: Consumer Credit Growth Declines For The Sixth Straight Quarter: TransUnion CIBIL

What is driving this increase in consumption credit? Are lenders pushing such products in the absence of credit growth from other segments like auto and home loans? Or are consumers increasingly funding their consumption via credit in the absence of strong income growth?

Harshala Chandorkar, chief operating officer of TransUnion CIBIL, said it was a combination of both these factors.

We are seeing good growth in the unsecured loans. I think that it’s linked to a change in the consumer mindset. People are looking at smaller ticket loans. They are financing things like mobile phone purchases through credit and are not really looking at it as a loan but an easy way to access finance.
Harshala Chandorkar, Chief Operating Officer, TransUnion CIBIL

Consumers looking to fund purchases, such as consumer durables and even holidays, through credit have a variety of options today. Apart from the option to take a regular personal loan, non-bank lenders are offering specialised products. EMI schemes are also offered across credit and debit cards to fund such purchases.

There is a shift in the consumer mindset and there is availability of products, said Chandorkar. “Options are available to consumers to get access to finance for these products. It happens seamlessly, in a few minutes,” she said.

The shift away from credit taken for one-time large expenses like weddings or medical needs, and towards financing of seemingly regular purchases, is visible in the reduced ticket size of such loans.

Average ticket sizes have gone down. This is specifically true of personal loans given by NBFCs. Last year, the average ticket size was about Rs 95,000. This year it has gone down to about Rs 35,000. So that is definitely a shift that is happening.
Harshala Chandorkar, Chief Operating Officer, TransUnion CIBIL

Also read: Where There Is A Spend, There Is An EMI

Are lenders rushing into pushing these products without paying heed to potential asset quality concerns that may crop up?

According to Chandorkar, delinquencies have remained in check so far.

For credit cards, the delinquency rate stood at 1.95 percent at the end of the September quarter, up 10 basis points from a year ago. For personal loans, it stood at 0.45 percent, marginally lower than last year.

The performance, however, differs across categories of lenders. “While the NBFC sector has seen an increase of 50 basis points in delinquencies, private and public sector banks have not seen an increase,” said Chandorkar.

Some build-up of risk is also visible in the categories to which lenders are pushing these products. Lenders are increasingly lending to borrowers with a relatively lower credit scores, such as those who fall in the “near-prime” or “sub-prime” categories.

For instance, in the second quarter of 2019, 44.8 percent of new personal loan borrowers were “sub-prime” and “near-prime”. In the third quarter, 34.7 percent of new personal loan borrowers were “below prime”. For credit cards, in the second quarter of 2019, 32.1 percent of new credit card clients were “sub-prime” and “near-prime”. In the third quarter, there was a significant shift towards “sub-prime” credit card customers, CIBIL said in its latest report.

In the last quarter we have seen that shift that NBFCs are looking at consumers with a lower score. That’s definitely a shift. Does that reflect in the delinquencies we are seeing? For NBFCs, certainly. But other categories, which is private and public banks, we are not seeing a shift in delinquencies from a portfolio perspective.
Harshala Chandorkar, Chief Operating Officer, TransUnion CIBIL

Chandorkar said in the past, a surge in unsecured lending to higher-risk customers led to a build-up of bad loans but sourcing strategies have changed over the years.

“Today it’s not just concentrated in metro and urban areas but it is more broad-based. Financial institutions are looking at other markets which are semi-urban or rural,” she said. Use of credit information has also improved, Chandorkar said.

Watch | CIBIL’s Harshala Chandorkar on consumer and MSME credit report...

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