Responsible lending can help sustain growth momentum

A look at the India’s consumer credit market during the first quarter of 2023 will show that there has been a high growth momentum of retail credit during the period. Retail credit in unsecured consumption-led products, in particular, has been growing at a fast pace. Quite naturally, it is digital and information-oriented lending that is fueling the growth, especially of unsecured consumption-led products. Their credit grew at a compounded annual growth rate (CAGR) of 47 per cent from the quarter ending March 2021 to March 2023, which is validated by the latest TransUnion CIBIL Credit Market Indicator (CMI) report. It shows that the credit demand in the quarter ending March 2023 remained robust, growing across almost all product types. CMI is a comprehensive measure of data elements that are summarized monthly to analyze changes in credit market health, which are categorized under four pillars-demand, supply, consumer behavior and performance. These factors are combined into a single, comprehensive indicator. Interestingly, the CMI for Q1 of 2023 reached a level of 102 in March 2023, up from 94 in the same period in 2022, and continuing the overall upward trend seen in credit market activity since mid-2021.

This growth momentum is particularly true among new-to-credit (NTC) consumers, whom lenders typically approach with caution: approval rates for these consumers have reduced from 34 per cent and 28 per cent in March 2020 and 2021 respectively, to 23 per cent in the quarter ending March 2023. These figures gave an ample indication of the opportunity that exists in accelerating financial inclusion, given India’s low credit penetration and large young population. Quite significantly, financial products, which are often branded as ‘Sachetized’ and comprise smaller loans of less than Rs 50,000 are getting increasingly popular as they are affordable and easier to access. These products have fueled credit adoption among younger consumers and underserved consumers in semi-urban and rural areas. Other than mortgage loans, all credit products are showing double-digit growth.

However, the slump in home loans is in the affordable housing segment (home loans with sanction amount less than Rs 25 lakh). When it comes to personal loans, those from upward of Rs 50,000 comprise 98 per cent of the total personal loan book size in terms of value. Small-ticket personal loans of less than Rs 50,000 are two per cent of the personal loan book size, in terms of value and account for only 0.3 per cent of the total retail loan book size at the 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 have other payment obligations that may take priority. Experts opine that identifying and providing access to credit to the deserving young consumers creates pathways for long-term and sustainable credit growth. There is no doubt whatsoever that responsible lending, continuous portfolio monitoring and controlling concentration risk will be essential for sustaining the growth momentum.