MUMBAI: Amidst the regulatory push to contain the unbridled growth of the consumer/retail loans by banks and non-banks, a rating agency report has said the same will triple by 2030, driving household leverage to 34 per cent by fiscal 2031 from about 23 per cent in fiscal 2024.
Last November, the Reserve Bank clamped down on over 30 per cent growth in retail loans led by unsecured personal loans and credit card spending, by increasing the risk-weighted capital requirement by 25 percentage points to 125 per cent and on credit cards by a similar quantum to 150 per cent.
To contain banks’ exposure to non-banks, the regulator also increased the same risk capital requirement on bank loans to non-banks by a similar quantum of 125 per cent.
Since then retail such loan origination has decelerated, according to the latest Cibil data, which showed that personal loan sales declined from 36 per cent in the June 2023 quarter to a paltry 3 per cent in June 2024. During the same period, credit card spending plunged to a minus 30 per cent from 8 per cent growth.
Despite the recent regulatory measures, retail loans by banks and finance companies could triple by 2030, driving household leverage to 34 per cent by fiscal 2031 from about 23 per cent in FY24, according to an S&P Global Ratings report Tuesday.
"We see the strength in retail lending as a competitive edge, with finance companies dominating in some retail products," said the agency’s credit analyst Geeta Chugh.
Generally, upper-layer finance companies have strong capital levels, which will support credit growth over the next two years and provide downside buffers.
However, she added that “recent actions by the Reserve Bank will curtail lenders' over-exuberance, enhance compliance, and safeguard customers."
“We expect the growth of rated private sector finance companies to decline to an average of 18 per cent in fiscal 2025 from 20 per cent in fiscal 2024, reflecting the cumulative impact of RBI actions,” she said.