Retail credit products have generally experienced an increase in serious delinquencies -- defined as balances 90 days or more past due.
Driven by low interest rates and stamp duty cuts, home-loan enquiries are seeing an uptick. However, overall retail credit demand continues to remain below the levels seen a year ago, credit bureau TransUnion Cibil said in a report. In November 2020, retail credit demand, as measured by inquiry volumes, was at 93% of the levels observed in November 2019, the report said.
Inquiry volumes for home loans were up 9.1% year-on-year (y-o-y) in November 2020. Conversely, personal loan inquiry volumes fell 43.1% y-o-y as lenders’ risk appetite declined. While in pre-Covid times, fintechs and non-banking financial companies (NBFCs) had driven much of the growth in this category, NBFCs saw a decline of 69.7% y-o-y in November 2020 as they pulled back from making personal loans available to high-risk borrowers. Inquiry volumes for fintechs also declined 10.2% y-o-y during the same period.
Abhay Kelkar, vice president of research and consulting, TransUnion Cibil, said that as businesses and consumers adapt to the challenging situation, there is positive momentum in demand for credit since the initial lockdown earlier in the year. “It is encouraging to see the renewed demand for credit, as that signals that consumer confidence and the willingness to borrow to fund larger-ticket purchases are on the rise,” he said.
At the same time, lenders’ appetite for lending to small borrowers has certainly suffered, with originations, as measured by new account openings, falling across all major retail credit categories y-o-y in August 2020. The report cited data from the Centre for Monitoring Indian Economy (CMIE) to state that the significant fall in origination volumes across all major retail credit categories was driven by a decline in consumer demand over that period as well as lender risk appetite. Kelkar said that when lockdown restrictions started to ease, there was a marked change in lender risk strategies, with some returning to the market far quicker than others. “Public sector banks were amongst the first and earliest to see a resurgence in demand. Equally, lender appetite for risk has changed, with some providers moving away from extending new credit completely,” he added.
Retail credit products have generally experienced an increase in serious delinquencies — defined as balances 90 days or more past due. The asset quality picture is complicated and will take time to emerge due to the lagged effect of financial conditions, relief programmes supported by lenders, and shifts in the payment priorities of consumers, the report said.
Among major retail credit products, credit cards and loans against property (LAP) recorded the largest increase in balance-level serious delinquency rates y-o-y in August 2020 – up 51 and 34 basis points (bps) – respectively. Conversely, auto loans saw an improvement in delinquency rates y-o-y in August 2020, with a reduction of 23 bps to 2.91%. Consumers may be prioritising auto loan payments to preserve the utility that personal transport provides, the report said. Personal loans showed a minimal improvement of one basis point, driven by a drastic reduction in lender risk appetite and new account originations.