Retail credit continues to boom, but delinquencies need better monitoring, says TransUnion CIBIL

• Credit performance improved across most product categories during the second quarter of 2023.
• The overall CMI for the second quarter of 2023 remained the same as the previous year, at 100.
• Small-ticket personal loans of less than Rs 50,000 accounted for 0.3% of the total retail loan book

India's retail credit market has continued to experience sustained growth in the second quarter of 2023, driven by consumption-led demand for credit. The TransUnion CIBIL’s Credit Market Indicator (CMI) report shows that credit supply, measured by originations, grew by 15% year-on-year compared to the same period in 2022. While portfolio performance remained stable for most products, there are signs of risk build-up in certain areas. The TransUnion CIBIL’s CMI report provides a comprehensive measure of changes in credit market health.

The Managing Director and CEO of TransUnion CIBIL, Rajesh Kumar, says that the latest CMI report indicates financial stability with healthy retail credit growth and broadly stable delinquency levels. However, he also noted that there are pockets showing signs of risk build-up. India continues to offer enough room for growth in credit thanks to rising levels of financial inclusion and large number of consumers who are new-to-credit.

The CMI report analyses changes in credit market health using four pillars: demand, supply, consumer behavior, and performance. The overall CMI for the second quarter of 2023 remained the same as the previous year, at 100.

Credit supply continued its upward trajectory in Q2 2023, with originations of new accounts increasing year-over-year. Growth was particularly notable among semi-urban and rural consumers, as well as younger consumers aged 18-30. However, originations for new-to-credit consumers decreased by 4%, indicating an opportunity for accelerating financial inclusion.

Overall, credit performance improved across most product categories during the second quarter of 2023. However, credit cards and personal loans experienced a slight decline in balance-level serious delinquencies. This suggests that consumers are generally managing their credit repayments responsibly.

Delving deeper into the data, the report shows that the small-ticket personal loans of less than Rs 50,000 accounted for 0.3% of the total retail loan book at an industry level. While delinquencies on these loans have a marginal impact on the overall portfolio, they need to be closely monitored. Consumers may prioritise other payment obligations ahead of personal loan payments, which could be an indicator of wider financial stress.

TransUnion CIBIL also highlighted the rapid increase in the adoption of small-ticket personal loans and its impact on the overall retail lending book. Since January 2022, these loans have accounted for approximately 25% of total origination volumes, with the proportion of credit active consumers availing them increasing from 3% in June 2019 to 8% in June 2023. Additionally, more consumers who availed small-ticket personal loans already had more than four credit products, indicating a marked leverage build-up.

The analysis of early vintage delinquency trends showed an increase in Q4 2022 on consumption loan products compared to the same period in 2019. This highlights the need for lenders to closely monitor vintage delinquencies and implement strong underwriting processes and robust credit risk management practices.

In conclusion, while India's retail credit market continues to show sustained growth, rising delinquencies on small-ticket personal loans and signs of risk build-up in certain areas call for increased vigilance from lenders. By closely monitoring consumer behavior and implementing effective risk management practices, lenders can nurture these opportunities for long-term profitable growth.