Unsecured consumer loans grow the most, credit card fees at Rs 1 lakh crore

MUMBAI: Credit card balances and personal loans have seen the highest growth rates as lenders expand the market and provide finance to those who had not previously borrowed. Credit cards and personal loans posted growth rates of 40.7% and 28% YoY for July-September (Q2FY20), respectively.
Unsecured Loans grow even as secured retail advances like car loans, loans against real estate (LAP) and home loans registered moderate net growth of 10.3%, 11.6% and 10.0%, respectively, according to TransUnion CIBIL’s Q2FY20 Industry Insights Report.
Credit card balances and number of accounts increased by 40.7% and 29.8% year-on-year, respectively, taking total balances to Rs 1,09,000 crore and active cards in circulation to 44.5 million (see chart). Personal card issuers’ balances increased 50.7% year-on-year, while other card issuers’ balances increased 26.9% year-on-year.

In the case of personal loans, outstanding loans grew by 28% to Rs 4.3 crore, which is now almost on par with auto loans which have a base of Rs 4.38 crore (10% growth). Personal loans still account for less than a quarter of home loans, which stood at Rs 19 lakh crore (a renewed 10% growth).
According to bankers, growth in unsecured lending is being driven by an expansion in the market, as non-mortgage personal loans as a percentage of gross domestic product are much lower than in other emerging markets. Lenders like HDFC Bank have expanded this market using technology in the form of analytics to automate lending. In addition to banks, non-bank financial corporations (NBFCs) have a large proportion of unsecured financial loans.
“Our results suggest that the shift towards consumer credit categories is becoming more sustainable and is being supported by strong demand for these products. The volume of consumer inquiries for personal loans and credit cards increased significantly during the period, while inquiries for loans against real estate and home loans were broadly flat or slightly decreased,” said TransUnion CIBIL Vice President (Research and Advisory) Abhay Kelkar.
“This change in demand could be driven in part by consumer sentiment and broader macroeconomic stresses. Flattening demand for large-scale asset purchases is leading to slower lending for asset financing, while consumers may increasingly turn to consumer credit products to fund daily living expenses. This shift in demand for consumer credit requires ongoing monitoring to understand the impact on lender portfolios.” Additionally, consumer credit growth is no longer concentrated in metropolitan locations. Lenders have increased credit penetration into less densely populated regions as part of their expansion strategies. Consumers in semi-urban and rural areas have also shown an increased willingness to take out credit from formal lending institutions.
The increase in default rates was not uniform and was most notable for home loans, which increased by 52 basis points (100 basis points = 1 percentage point), home loans (13 basis points) and credit cards (10 basis points). Total defaults even improved for auto loans (down 22 basis points) and personal loans (down 5 basis points).

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