February 25, 2024

Retail Credit Continues on its High Growth Trajectory

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Mumbai, India, 15 July 2023 – The growth momentum of retail credit remained high in India’s consumer credit market during the first quarter of 2023. Unsecured credit portfolios continue to scale growth backed by small-ticket loans, according to the findings of the latest edition of the TransUnion CIBIL Credit Market Indicator (CMI)* report. The report indicates that credit demand in the quarter ending March 2023 remained robust, growing across almost all product types.

Speaking on the findings of this edition of the CMI report, the MD and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “Digital and information-oriented lending is fueling the growth of retail credit, especially in unsecured consumption-led products, which grew at a compounded annual growth rate (CAGR) of 47% from the quarter ending March 2021 to March 2023. Responsible lending, continuous portfolio monitoring and controlling concentration risk will be essential for sustaining the growth momentum.”

The CMI is a comprehensive measure of data elements that are summarized monthly to analyze changes in credit market health, which are categorized under four pillars: demand, supply, consumer behavior, and performance. These factors are combined into a single, comprehensive indicator, and pillars can also be viewed in more detail individually. The CMI for Q1 of 2023 reached a level of 102 in March 2023, up from 94 in the same period in 2022, and continuing the overall upward trend seen in credit market activity since mid-2021.

When selecting certain variables, year-over-year (YoY) movements are analyzed to remove the effects of seasonality. The increase in April 2021 CMI was temporary and driven primarily by an exponential increase in inquiries and originations in April 2021 compared to a lower base of April 2020. Inquiry and origination volumes increased YoY by 8.5 times and 5.2 times respectively in April 2021. The Mar 2023 CMI value is provisional and subject to revision as additional data are reported to the TransUnion CIBIL credit bureau.

Originations, a measure of new accounts opened, is a function of both consumer demand and lender supply and continues to remain buoyant. However, approval rates continued to be lower compared to the same time prior year across all loan types, as lenders were cautious.

This is particularly true among new-to-credit (NTC) consumers, whom lenders typically approach with caution: approval rates for these consumers have reduced from 34% and 28% in March 2020 and 2021 respectively, to 23% in the quarter ending March 2023.

“Significant opportunity exists in accelerating financial inclusion given India’s low credit penetration and large young population. Identifying and providing access to credit to India’s deserving young consumers creates pathways for long-term and sustainable credit growth,” Kumar said.

Table 1: YoY Growth in Originations

Product   Volume (Accounts opened) Value (Sanctioned Amount)
Home Loan   -11% 0%
LAP   2% 9%
Auto Loan   13% 26%
Two-Wheeler Loan   25% 39%
Personal Loan   21% 13%
Credit Card   11%
Consumer Durable Loan   15% 11%

 

‘Sachetized’ financial products that comprise smaller loans of less than INR 50,000 are increasingly popular as they are affordable and easier to access. These products have fueled credit adoption among younger consumers and underserved consumers in semi-urban and rural areas.

Insights show that other than mortgage loans, all credit products are exhibiting double-digit growth. However, the slump in home loans is specifically in the affordable housing segment (home loans with sanction amount < INR 25 lakhs).

Table 2: YoY Growth in Home Loan Originations

Product Volume (Accounts opened) Value (Sanctioned Amount)
Home Loan <25L -16% -15%
Home Loan >25L 1% 6%

 

During Q1 2023, overall balance-level serious delinquencies (measured as 90 days or more past due) improved across product categories, except for credit cards. This improvement suggests that consumers appear to be managing their credit repayments responsibly.

Table 3: YoY Improvement in Balance-Level Delinquencies

Product 90+ Day-Past-Due Balance-Level Delinquency Rate YoY Change – Basis Points (bps)
Home Loan 1.05% -24
LAP 1.77% -119
Auto Loan 0.75% -26
Two-Wheeler Loan 1.57% -83
Personal Loan 0.94% -4
Credit Card 2.94% 66
Consumer Durable Loan 1.46% 1

 

To provide deeper insights on the performance of recent originations, TransUnion CIBIL analyzed early (vintage) delinquency trends with same age on book. Early delinquency measured on originations for Q3 2022 continued to remain stable for most products other than personal loans which exhibited an increase from 3% in Q3 2019 to 4%.

Analysis of recent originations on small-ticket personal loans shows that vintage delinquencies*** on these loans have increased marginally from 8.6% in Q2 2022 to 8.9% in Q3 2022. On high-ticket personal loans of more than INR 50,000, vintage delinquency has come down from 4.1 in Q2 2022 to 3.7% in Q3 2022.

Personal loans of INR 50,000 and more comprise 98% of the total personal loan book size in terms of value. Small-ticket personal loans of less than INR 50,000 are 2% of the personal loan book size, in terms of value and only account for 0.3% of the total retail loan book size at an industry level. Even though delinquencies on small-ticket personal loans have a marginal impact on the personal loan portfolio, these need to be monitored closely, especially because consumers may have other payment obligations that may be prioritized.

It is important to note that vintage delinquency is measured as a percentage of sanction amount on accounts, which show one instance of missed payment during the first six months from origination, and it is not a measure of overall portfolio-level non-performing assets (NPA).

Table 4: Vintage delinquency

30 days past due vintages measured at six months on book

Delinquency vintages*** Q3 2019 Cohort Q3 2021 Cohort Q3 2022 Cohort
Home Loan 6% 7% 6%
LAP 3% 2% 2%
Auto Loan 6% 5% 3%
Two-wheeler Loan 7% 6% 5%
Personal Loan 3% 4% 4%
Consumer Durable Loan 4% 2% 3%

 

***Vintage delinquency is calculated as % of sanction amount on accounts ever 30+dpd in six months from origination. Origination of Q3 2019, Q3 2021, Q3 2022, vintages measured for performance as of Q1 2020, Q1 2021, and Q1 2023

“Retail credit continues to remain on a strong and steady growth trajectory. While performance across credit products is stable, some segments require close monitoring to ensure sustained and long-term growth,” Kumar added.

* The TransUnion CIBIL Credit Market Indicator (CMI) is an evolving model which is regularly reviewed to ensure the most relevant variables and their relative weighting are selected to best chart the credit health of India’s lending market. When selecting certain variables, year-on-year movements are analyzed to remove the effects of seasonality. The CMI is not a stationary index; hence the level in itself is not indicative of credit health. The CMI number needs to be looked at in relation to the previous period(s) and not in isolation. A lower CMI number compared to the prior period represents a decline in relative credit health, while a higher number reflects an improvement.