Delinquency rates in housing loans and credit cards rise in September quarter

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Published: January 16, 2020 1:45:12 AM

Overall balance-level serious delinquencies showed an increase of 10 bps y-o-y in Q2FY20. The categories of auto loans and personal loans, however, saw an improvement in delinquency rates.

Credit cards and personal loans also showed an improvement of 78 bps and 55 bps, respectively.Credit cards and personal loans also showed an improvement of 78 bps and 55 bps, respectively.

Serious delinquency rates in housing loans and credit cards inched up by 13 basis points (bps) and 10 bps, respectively, on a year-on-year (y-o-y) basis in the quarter ended September, credit bureau TransUnion Cibil said on Wednesday.

Serious delinquencies shot up 52 bps y-o-y in loans against property (LAP), a category which has seen a steady decline in asset quality over the last few years.

Overall balance-level serious delinquencies showed an increase of 10 bps y-o-y in Q2FY20. The categories of auto loans and personal loans, however, saw an improvement in delinquency rates.

In a report on trends in consumer credit during the quarter, Cibil said a vintage analysis of more recent loan originations — accounts originated in Q4FY19 — showed more encouraging signs for the home loan and LAP categories, with improvements of 312 bps and 205 bps, respectively, indicating better credit selection.

Credit cards and personal loans also showed an improvement of 78 bps and 55 bps, respectively. However, the same vintage analysis for auto loans showed an increase of 151 bps in delinquencies, suggesting asset quality pressure in loans originated more recently.

The worsening in consumer credit quality has been accompanied by easier lending standards, the report said.

For personal and auto loans, there has been a marked increase in originations for consumers in the below-prime segment, that is, borrowers with a credit score of 730 or less out of 900. Almost 30.5% of auto loan originations and 34.7% of personal loan originations in the September quarter were to borrowers considered below prime – representing increases of 3.5% and 8.3%, respectively, over the corresponding quarter a year ago. “Accordingly, auto loan has experienced sharper increases in vintage delinquencies,” the report said.

Trends in loan origination during the second quarter suggest that fewer people are interested in borrowing to buy a house than for purposes of consumption.

Origination balances of consumption lending categories such as personal loans and consumer durable loans grew at 24% y-o-y, while those of asset finance products such as auto loans, two-wheeler loans, LAP and home loans declined by 8.4% y-o-y. The share of consumption products to total balances originated increased to 31.2% in Q2FY20, compared with 25.1% in Q2FY19.

Abhay Kelkar, vice-president of research and consulting, TransUnion Cibil, said the change in demand may, in part, be driven by consumer sentiment and wider macroeconomic pressures. “Flattening demand for large-ticket asset purchases is causing slower asset finance loan originations while consumers may be increasingly turning to consumption credit products to help finance day-to-day expenses. This shift in consumer credit demand warrants ongoing monitoring to understand the impact on lender portfolios,” Kelkar added.

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