Retail credit demand moderated in Q2: Cibil

Home loans, the largest category declined 10% in the reporting quarter as against a 3% growth a year ago.
Retail credit demand moderated in Q2: Cibil
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Led by a fall in demand in credit card spends, personal loans and consumer durable loans, the overall growth of retail credit, which has been the mainstay for lenders till the regulator asked to them to contain lending in these segments in November 2023 fearing a bubble, has moderated in the September quarter when there was also a general cooling in credit demand and a fall in credit supply across most loan products.

According to a report by Transunion Cibil Monday, total origination value, or credit disbursal, for consumption-driven loans declined with personal loans down -5%, credit cards down -20% and consumer durable loans at -3%.

Credit performance was also mixed with consumption-led loans such as credit cards, personal loans and consumer durable loans, showing a deterioration compared to the same period in 2023.

Cibil chief executive Bhavesh Jain has attributed several factors including challenging global economic conditions, slowing urban consumption and regulatory measures designed to stabilize the credit-deposit ratio, for the falling numbers.

Home loans, the largest category declined 10% in the reporting quarter as against a 3% growth a year ago. Loan against property inched up 3% vs 16%; auto loans declined 3% against a 12% growth, two-wheeler loans grew 4% against 19%; personal loan grew 11% as against 32%, credit card spends declined the steepest by 24% as against 9% growth; and consumer durable loans declined 6% as compared to a 2% growth.

Slowdown in consumer credit demand, coupled with a decline in loan originations by lenders, has resulted in a cooling of overall retail credit growth. Identifying eligible and lower risk consumers that can afford to service their credit obligations, will be critical for the sustained growth of credit and the economy, Jain added.

It is not that credit intake has been falling but even loan enquiries, which is measure of consumer demand, and origination that is a measure of lender supply, volumes of consumption-driven loans declined on-year during the reporting quarter, except for personal loans, which though grew 11% but was only a third of 32% in the same period in 2023.

Similarly, loans against property and two-wheeler loans also saw growth in originations, albeit at a slower pace. Origination volumes for all other retail loan products declined in the quarter.

Lenders are taking a measured approach to risk management with a general cooling of origination volumes. In addition, where they are granting non-consumption loans, these are typically for higher amounts catering to high income consumers, says Jain.

Not just that loan demand and enquiries are down but even the ticket sizes are also falling across home, auto and two wheeler loans with only the lower ticket loans gaining some traction.

Although still significant, portfolio balances grew at a slower rate for all retail credit products, except credit cards which grew at 34% compared to 26%, Jain said, adding there has been a cooling off in new loan originations for personal and consumer durables loans since the March 24 quarter.

This also led to the loan outstanding in value terms slowing down with home loans at 24% vs 16%, loan against property 22% vs 28%, auto loan 20% vs 25%, two-wheeler loans at 29% vs 38%, personal loans at 14% vs 30% and consumer durable loans at 23% vs 32%. Only credit card outstanding grew that too at faster clip of 34% as against 26%.

The marked increase in credit card spending indicates its expanding acceptance among consumers, not only for transactions but also as a tool to access credit. This may be an opportunity for lenders to identify consumers who require additional credit for their consumption and aspirational goals, and service them with customised solutions that are better suited and affordable for them. These customised credit offers should focus on helping the consumer fulfill their needs effectively while also supporting them in building a stronger credit profile, Jain said.

However, delinquencies show mixed picture with balance-level serious delinquencies (measured as 90 days or more past due) by product improved for secured loan products but deteriorated for consumption-led loans.

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