India’s retail credit market has seen continued growth in the second quarter of 2023, driven by a demand for credit. The latest report from TransUnion CIBIL’s Credit Market Indicator (CMI) shows that credit supply has grown by 15% compared to the same period last year. Overall, portfolio performance remains stable, but there are some areas of concern.
The Managing Director and CEO of TransUnion CIBIL, Rajesh Kumar, notes that while there is healthy retail credit growth and stable delinquency levels, there are pockets showing signs of risk build-up. India’s financial inclusion and the increasing number of new-to-credit consumers provide opportunities for further credit growth.
The CMI report evaluates credit market health based on demand, supply, consumer behavior, and performance. The overall CMI for the second quarter of 2023 remains unchanged at 100.
Credit supply continues to increase in Q2 2023, with new account originations growing year-on-year. This growth is particularly notable among semi-urban and rural consumers, as well as younger consumers aged 18-30. However, originations for new-to-credit consumers have decreased, highlighting the need for improved financial inclusion.
Overall, credit performance has improved for most product categories in the second quarter of 2023. However, credit cards and personal loans have experienced a slight decline in serious delinquencies, indicating responsible credit management.
Digging deeper into the data, the report reveals that small-ticket personal loans (less than Rs 50,000) account for 0.3% of the total retail loan book. While delinquencies on these loans have a minimal impact on the overall portfolio, they require close monitoring. Consumers may prioritize other payment obligations over personal loan repayments, potentially indicating financial stress.
TransUnion CIBIL also highlights the rapid increase in the adoption of small-ticket personal loans and its impact on the retail lending book. These loans have accounted for approximately 25% of total origination volumes since January 2022, with an increasing number of credit-active consumers availing them. It is worth noting that many consumers who take these loans already have more than four credit products, suggesting a significant leverage build-up.
The analysis of early vintage delinquency trends reveals an increase in Q4 2022 compared to the same period in 2019, particularly for consumption loan products. This emphasizes the importance of closely monitoring delinquencies and implementing robust credit risk management practices.
In conclusion, while India’s retail credit market continues to grow, there are concerns regarding delinquencies on small-ticket personal loans and signs of risk build-up. Lenders must closely monitor consumer behavior and implement effective risk management practices to optimize long-term profitable growth.
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