Retail credit demand has witnessed 5% decline in March quarter, led by steep fall in home loans and credit card spends, according to a report.
The segment has been facing headwinds since the Reserve Bank had asked lenders to set aside higher risk capital following over 30% growth in unsecured loans.
Home loans declined by 7% in volume and 1% in value, property loan declined by 1% and 15%, credit card spends plunged by 32% in volume; and two-wheeler loan dipped 1% in volume but grew by 2% in value. On the other hand, personal loans grew by 6% in value, auto loans at 1% and 6% and consumer durable loans inched up 6% in value and 7% in volume, according to the latest numbers shared by Transunion Cibil.
In November 2023, fearing a bubble in the retail loan, which are mostly unsecured in nature barring home loans, the Reserve Bank had increased the risk capital that lenders had to set aside by 25 percentage points to 125% on such loans and to 150% on credit card outstandings. The same applied to bank loans to non-banking companies as well. However, these requirements were removed in March this year.
“The slowing credit demand, especially among younger borrowers, is reflected in the easing in demand for consumption loans, which is typically the choice of products for younger borrowers. At the same time, a stabilisation in delinquencies for personal loans and credit cards, while still an emerging trend, is positive and reflects improved repayment behaviour, supported by responsible lending practices,” said Bhavesh Jain, CEO of Transunion Cibil. The muted demand was more pronounced among consumers in the under 35-year-bracket. Consequently, the share of new-to-credit consumers fell by three percentage points during the same period. However, signs of improving credit performance emerged, particularly through consistent month-on-month declines in credit card delinquencies during the quarter, Cibil said Monday.