Retail credit growth continues while delinquencies remain broadly stable

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Retail Credit Growth Continues While Delinquencies Remain Broadly Stable. India’s retail credit market continued to show sustained growth during Q2 2023, with consumption-led demand driving the need for credit. Credit supply (originations) grew at 15% year-over-year (YoY) compared to Q2 2022. Portfolio performance remained mostly stable compared to the same period in the prior year for most products. These were some of the findings of the latest edition of the TransUnion CIBIL Credit Market Indicator (CMI)* report for the quarter ending June 2023.

Speaking on the findings of the Q2 2023 CMI report, the MD and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “The latest CMI indicates financial stability with healthy retail credit growth and broadly stable delinquency levels, even though a few pockets show signs of risk build-up. At the same time, India’s large young population, coupled with low credit penetration in the new-to credit segment, provide huge untapped potential for accelerating credit growth and financial inclusion.”

The CMI is a comprehensive measure of data elements that are summarized monthly to analyze changes in credit market health, categorized under four pillars: demand, supply, consumer behavior, and performance. These factors are combined into a single, comprehensive indicator, and pillars can also be viewed in more detail individually. The CMI for the quarter ending June 2023 was 100, which is the same as in the quarter ending June 2022.

Credit supply continues upward trajectory

Originations, a measure of new accounts opened, continued to grow YoY in Q2 2023 with growth among semi-urban and rural consumers (one percentage point increase YoY). Originations among younger consumers (18-30 years) remained steady YoY, while those for new-to-credit consumers decreased by 4%, highlighting untapped opportunity for accelerating financial inclusion given India’s relatively low credit penetration and large young population.

Credit performance continues to improve across most products

During Q2 2023, overall balance-level serious delinquencies (measured as 90 days or more past due) improved across product categories, except for credit cards and personal loans. This improvement suggests that consumers appear to be managing their credit repayments responsibly.

For consumers having at least one small-ticket personal loan, the balance-level delinquency rate was 5.4%, marking an increase of 120 bps (basis points) since Q2 2022. Delinquencies on small-ticket personal loans have a marginal impact on the overall retail loan portfolio, which looks at the outstanding balances of all retail products including home loans, auto loans, credit cards, personal loans, and others.

Small-ticket personal loans of less than INR 50,000 account for 0.3% of the total retail loan book size at an industry level. Even though delinquencies on small-ticket personal loans have a marginal impact on the personal loan portfolio, these need to be monitored closely, especially because consumers may prioritize other payment obligations ahead of personal loan payments, which in turn may be a wider indicator of financial stress.

Marked leverage build-up on small-ticket personal loans

TransUnion CIBIL studied the rapid increase in the adoption of small-ticket personal loans and the impact of this increase on the overall retail lending book in the Q2 2023 edition of the CMI, as the credit industry landscape has changed significantly over the last four years. Since Jan 2022, small-ticket personal loans of less than INR 50,000, while representing a very small share of total retail balances, have accounted for approximately 25% of total origination volumes. As a result, the proportion of credit active consumers availing small-ticket personal loans has increased to 8% in June 2023, from 3% in June 2019.

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