Shoppers stop: Consumers pick credit card, personal loans over secured auto, car loans

By: |
October 30, 2019 5:30 PM

Indian consumer credit market also continues to face the headwind of NBFC crisis and the growth has decelerated in the second quarter as well.

The growing trend in unsecured loans has taken a toll on loans in certain secured loans. 

More consumers are getting credit cards and personal loans rather than getting secured loans like auto loans. “Growth in credit cards and personal loans significantly outpaced increases in auto loans, home loans and loans against property,” according to TransUnion CIBIL Industry Insights Report. The growing trend in unsecured loans has taken a toll on loans in certain secured loans. In fact, there is a growing number of people who have access to credit. According to the CIBIL report, access to credit has increased by 21.7% on-year in Q219, which “was down materially from the 26.3% jump on-year in Q218,” the report said.

Indian consumer credit market also continues to face the headwind of NBFC crisis and the growth has decelerated in the second quarter as well. Coupled with NBFC woes and higher reliance on unsecured lending products, credit sector growth remained flat. “NBFCs, which have played a key role in consumer credit growth in recent years, saw slower growth in the second quarter compared to banks,” the report said. It also highlighted the woes of non-banking financial institutions in the country and said that they “face difficult funding challenges and consequently have been shifting their originations strategy away from larger-value loans to smaller-ticket personal loans”. 

Talking about how NBFC issue looms large on the economy, Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL, said: “The NBFC liquidity crisis is becoming a serious concern, as it could have negative ramifications on wider economic activity”. The growth in the sector fell from 23.5% in Q218 to 17.1% in Q219 across all major credit products. 

India has been facing a financial crunch since the collapse of IL&FS which led to a confidence crisis in non-banking finance entities. The latest blow has been caused by PMC fraud which has rendered thousands of its customers without access to life savings. The PMC fraud has also opened discussions about bad loans that are yet to be surfaced.

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