Credit bureaus are gradually becoming more concerned about the risks of increased retail lending. Key officials are advising lenders to be cautious of the significant growth in unsecured retail loans, which have been one of the fastest-growing segments since the COVID-19 pandemic.
Specifically, unsecured consumption-based products have experienced a compounded annual growth rate (CAGR) of 47% from the March 2021 quarter to March 2023. Additionally, credit card delinquencies have risen by 66 basis points (bps), reaching 2.94% in the March 2023 quarter. Responsible lending, continuous portfolio monitoring, and controlling concentration risk are crucial for maintaining the growth of retail loans, according to Rajesh Kumar, the Managing Director and CEO of market leader TransUnion CIBIL, who commented on the findings of a report on retail credit trends released by his bureau.
The growth of retail credit, particularly unsecured loans, is driven by digital and information-oriented lending. Kumar emphasized that while retail credit is experiencing strong and steady growth overall, some segments require close monitoring to ensure sustained and long-term growth. The report on credit market indicators, which assess changes in credit market health across four pillars (demand, supply, consumer behavior, and performance), reveals that approval rates for all loan types were lower compared to the same period the previous year as lenders exercised caution.
This cautious approach is particularly evident when it comes to new-to-credit (NTC) consumers. Approval rates for these consumers have decreased from 34% and 28% in March 2020 and 2021 respectively, to 23% in the quarter ending March 2023. In terms of value, personal loans exceeding Rs 50,000 make up 98% of the total personal loan book size. On the other hand, small-ticket personal loans under Rs 50,000 account for only 2% of the personal loan book size and a mere 0.3% of the total retail loan book size at an industry level. The report highlights the need to closely monitor delinquencies on small-ticket personal loans, as consumers may have other payment obligations that take priority.