Retail-led credit model facing headwinds as home loan delinquencies rise, RBI says

Housing loans and other personal loans constituted as much as 64 per cent of incremental credit during the last two financial years.

The customer segment of Fino Bank at the middle of the pyramid is targeted to families of many of the people working in foreign countries, Fino Bank said.
The customer segment of Fino Bank at the middle of the pyramid is targeted to families of many of the people working in foreign countries, Fino Bank said.

The Reserve Bank has flagged concerns on the deteriorating credit quality in the retail books of lenders and warned that the retail-led model of selling credit, led by housing loans, is confronting headwinds now.

Between April and the first week of December, credit disbursal grew to 7.1 per cent as against 5.4 per cent growth a year ago and 5.2 per cent in March 2021, according to the financial stability report released on Wednesday.

The report said that in recent years, growth in wholesale credit has been lagging; retail credit, on the other hand, was generally recording double-digit growth, although the pace of growth remains below the pre-pandemic level.

Housing loans and other personal loans constituted as much as 64 per cent of incremental credit during the last two financial years.

“The retail-led credit growth model is confronting headwinds: first, delinquencies in the consumer finance portfolio have risen, and second, the new-to-credit segment, a key driver of consumer credit growth in the pre-pandemic period, is showing a decline in originations,” the report said.

The share of retail/personal loans constituted 64.4 per cent of incremental credit disbursal in FY21, up from 64.1 per cent in FY20. Of this housing loans constituted 31.2 per cent of the total incremental credit in FY21, up from 30 per cent in FY20.

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