Here are some emerging trends which will pave way for the next evolution of credit industry in India.
India’s credit industry has gone through a rapid evolution over the last decade and has experienced a transformation of the consumer mind-set from a savings-focused and debt-averse country to a more consumption-focused, leveraged economy. Insights reveal the sheer scale of India’s growing credit economy and the rising number of consumers with 22 million Indian consumers applying for new credit opportunities each month. Here are some emerging trends we are observing which will pave way for the next evolution of credit industry in India:
Unsecured Lending paving growth with smaller Ticket Sizes
TransUnion CIBIL Market Insights show that enquiry and new loan origination volumes have grown at over 30% in 2019 over 2018, with unsecured loans [Personal Loans, Consumer Loans, Credit Cards] being the primary drivers of this growth. Secured loans have shown stagnation or de-growth in a couple of months in 2019 over 2018. Growth in unsecured lending, which includes loans to finance and consumer durable goods and personal loans, is very strong. The Personal Loans and Consumer Loans segment has grown by over 100% in 2019 over 2018 with Fintech lenders beginning to lend in this space, either having acquired an NBFC license or through partnerships with the existing NBFCs. This growth in count of new loan originations is accompanied by emergence of a consumer segment picking up an average loan amount of Rs 20,000 or lesser. Banks continue to play in the ticket size bracket of Rs 300,000 & above with traditional NBFCs too showing a significant decline in their ticket sizes to Rs 50,000 from what used to be Rs 200,000 a couple of years back.
From an amount standpoint, the ticket sizes on unsecured credit segment are getting smaller in India. That is a trend that we have been seeing for the last three to four years.
Semi-Urban and Rural geographies to drive the next phase of growth
In the last 3-4 years, we have seen the emphasis on financing consumer durables. So, smaller ticket size fintech lending for phones and TVs has been going a lot more towards semi urban and rural areas. In fact, the largest emerging growth markets in the unsecured side is semi urban and rural.
Credit Cards evolution is a great example to validate this trend as credit cards are still considered to be a very urban centric product with almost 80% of all the credit card balances being all urban. But what is an interesting emerging trend is that the fastest growing credit card market segment has in fact been in the semi urban and rural geographies. Those are the segments where credit card companies are actually reaching out and cross selling to the CASA base or partnering with banks to figure out how to deliver credit cards to the un-carded. The growth has been diverse.
Fintech Lenders to benchmark the evolution of credit in 2020 and beyond
The trigger to the next phase of evolution is the emergence of diverse types of FinTechs that are proliferating the market and are carving a niche by targeting younger consumers in highly urbanized areas with smaller loan products. India’s FinTech lending market is showing interesting growth with lenders grabbing market share on loans below Rs 50K. Also, Indian Fintechs lend to millennials and Gen Z customers under the age of 30, more than twice that of Indian banks. Yet another interesting fact is that New-To-Credit (NTC) borrowers comprise of over 25% of all business derived by Fintech lenders, which is more than double that of lender types.
Unlocking the potential of the untapped credit market
We believe that the big runway of growth in India’s credit sector is going to be the capability to unlock the product construct of the lending side. The Fintech revolution is a great example to study here and it’s interesting to understand how they are looking at the product construct more attuned to the needs of consumers. In terms of financial inclusion and tapping the untapped consumer base, we estimate that there are about 200 to 250 million individuals to unlock; people who can be exposed to organised credit opportunities.
The Indian consumer credit market continues to expand at a rate higher than most other major economies, but there are growing pains associated with that expansion. Originations and balance growth continue to be robust for unsecured products, including credit cards and personal loans, but a higher share of this growth is to higher-risk borrowers. While overall delinquency rates have generally remained stable, there are indications of higher risks in the market that lenders must understand, and adjust their strategies to address effectively. In today’s challenging market, it is critical that lenders conduct increasingly sophisticated analyses, such as vintage analysis, to better understand the underlying health of their portfolios. Such analysis will play an important role in helping ensure institutions acquire accounts with acceptable risk, closely manage loan loss reserves and adjust pricing appropriately.
The key to tap growth in 2020 and the following decade would be to tap the potential of this ever-growing credit market through customizing product construct and seamlessly catering to the increased demands and expectations of consumers while still being able to efficiently manage risks.
(By Harshala Chandorkar, COO, TransUnion CIBIL)