Unsecured loans jump 47% in two years till March led by small-ticket lending
Unsecured retail loans grew at a compound annual growth rate (CAGR) of 47 percent from March 2021 to March 2023 led by digital and information-oriented small ticket lending, according to TransUnion CIBIL’s Credit Market Index (CMI) report.
The report tracks the health of the credit market across criteria including demand, supply, consumer behavior and performance. CMI for the fourth quarter of fiscal 2020 was 102 at 102, up from 94 a year earlier, cementing an upward trend in credit market activity since mid-2021.
Also read: Major private banks record 25% growth in retail loans in the first quarter
All credit products, except for mortgages, posted double-digit growth in FY23, with advances payable for product categories up 14-38 percent year-on-year.
Lower home loans
The decline in home loans was led by the affordable housing segment – home loans with penalty less than ₹ 25 lakh, where loan volume decreased by 16 per cent and loan volume approved by 15 per cent on an annual basis. Mortgage loans over EGP 25,000 saw an increase in volume by 1 percent and an increase in value of 6 percent.
Total loan originations, or new accounts opened, remained high, but approval rates fell year-on-year across loan categories as lenders became more cautious. Approval rates for new customers to credit fell steadily to 23 percent in the fourth quarter of fiscal year 2020 from 34 percent in March 2020.
‘Packaged’ financial products consisting of loans as small as INR 50,000 are getting more and more popular because they are affordable and easy to access. The report said these products boosted adoption of credit among younger consumers and disadvantaged consumers in peri-urban and rural areas.
portfolio performance
Delays, measured as 90 days or more, improved across product categories, with the exception of credit cards, which saw an increase of 66 basis points to 2.94 percent.
Early (legacy) delinquency, as measured on loan origination in Q2FY23, continued to be flat for most products other than personal loans, which rose to 4 percent from 3 percent a year ago.
Delinquencies on small-ticket loans increased to 8.9 percent in the second quarter of FY23 from 8.6 percent in the previous quarter, while high-ticket personal loans decreased to 3.7 percent from 4.1 percent.
Late payment is measured as a percentage of penalty amounts on accounts that show one instance of default within the first six months from inception.
personal loans
Personal loans above INR 50,000 make up 98 percent of the total personal loan book, while small ticket loans make up 2 percent of personal loans and 0.3 percent of retail loans industry-wide.
“Although delinquencies in small-ticket personal loans have a marginal impact on the personal loan portfolio, they need to be closely monitored, particularly because consumers may have other repayment obligations that may be prioritized,” the report said.