Credit uptake on recovery path as India rebounds from Covid-19: Report

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December 17, 2020 2:26 PM

Despite very lean months during the lockdown, the combination of economic revival and safe access to credit via Digital KYC is pushing credit uptake to trend towards 80% of pre-Covid numbers.

The average personal loan ticket size was Rs 1.84 lakh in metros and Rs 2.09 lakh for non-metros.

With rising NPAs, the lending sector had it tough even in 2019. Little had prepared it for the shock of 2020. Income uncertainty increased, a loan moratorium started, and lending risks heightened. Despite these, borrowers from non-metros continued to be hungry for better lifestyles, and women took bigger home loans than men. A preference for online shopping rewards credit cards was seen. Regulators also allowed Indians to buy credit from the safety of their homes with digital KYC, as per a report by BankBazaar.

The BankBazaar Moneymood 2021 report – which is a review of credit purchase trends in India in 2020 and presents the outlook for 2021 – reveals that despite very lean months during the lockdown, the combination of economic revival and safe access to credit via Digital KYC is pushing credit uptake to trend towards 80% of pre-Covid numbers.

Data shows that every quarter of 2020 had a different story of resilience. The year started on a promising note, with the recession of 2019 beginning to ease off in the first quarter of 2020. However, the Covid-19 pandemic brought life, as we know it, to a grinding halt towards the end of March 2020. Consequently, priorities have changed, and it is evident that people are evaluating their spends and investments very closely.

The biggest casualty were investments in assets such as homes as people turned wary of spending and set aside major capital investments for later. However, continuance of PMAY benefits, choice inventory, slashed registration costs in some places, and record low interest rates on home loans were strong inducements to invest.

These factors along with the change in social and work structure due to the pandemic also convinced investors to look at bigger properties and loans. Consequently, the average home loans ticket size saw a strong increase from Rs 23.82 lakh in 2019 to Rs 26.41 lakh in 2020. The average ticket size for women went up from Rs 25.66 lakh to Rs 31.20 lakh compared with an increase from Rs 23.64 lakh to Rs 26.04 lakh for men. The contribution of home loans under Rs 30L also decreased to 68% from 72% last year.

The biggest drivers of recovery were the non-metros. In the credit card segment, their contribution grew by more than 20%. The non-metros were also ahead of metros when it comes to personal loans. The average personal loan ticket size was Rs 1.84 lakh in metros and Rs 2.09 lakh for non-metros. The share of non-metros for contactless credit products also went up from 20% in Q2 to 40% in Q3 and the trend continues in Q4 as well.

Commenting on the same, Adhil Shetty, CEO, BankBazaar, said, “Data shows that despite the odds, India is on the way to recovery as economic activity gets back on track. During these tough times, technology provided the solution to some very challenging problems. Digital KYC solutions facilitated by BankBazaar enabled people from cities across India access much-needed credit lines in a completely contactless manner at a time when physical contact was out of question. As India emerges from this crisis, BankBazaar will be right there with them, doing our bit to ensure smooth access to the right financial product, without disruptions.”

Credit cards plunged sharply in the wake of the pandemic but also recovered equally fast. The combined impact of last year’s recession followed by the pandemic drastically affected the new-to-workforce segment aged 25 or less. Job losses and salary cuts at one end and tightened credit policies at the other resulted in a drop of more than 50% in the under-25 segment.

Oddly, with fewer opportunities to travel, upgrade one’s lifestyle, and enjoy the many luxuries that premium credit cards provide, demand for them doubled in 2020. The demand may have been largely driven by the benefits these cards offered online shoppers: accelerated reward points, internet freebies such as access to OTT services, and the opportunity to convert these points into premium benefits such as free bookings once the world opens up.

“Habits once formed during the pandemic are likely to last. Credit card users have gotten used to accelerated rewards and cashback through online shopping. This will likely continue in 2021. But as the world eases back to normalcy, the offline benefits these cards provide will come into play,” says the report.

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