Retail Loan: Credit bureau flags risk of retail loan boom


Credit bureaus are slowly warming up to signal risks of boom retail lending. Top officials are cautioning lenders on the sharp rise in retail loans especially unsecured retail loans that has been one of the fastest growing segments post COVID.

Notably unsecured consumption-led products have risen a compounded annual growth rate (CAGR) of 47% from the quarter ending March 2021 to March 2023 and credit card delinquencies rose 66 bps ( one bps is 0.01 percent) year-on-year in the March 2023 quarter to 2.94 percent.

“Responsible lending, continuous portfolio monitoring and controlling concentration risk will be essential for sustaining the growth momentum (of retail loans) ” said Rajesh Kumar MD and CEO of market major TransUnion CIBIL commenting on the findings of a report on retail credit trends released by his bureau. Digital and information-oriented lending is fuelling the growth of retail credit, especially unsecured loans.

“Retail credit continues to remain on a strong and steady growth trajectory. While performance across credit products is stable, some segments require close monitoring to ensure sustained and long-term growth,” Kumar added.

The report on the credit market indicator, a measure of data elements that are summarized to analyse changes in credit market health, which are categorized under four pillars: demand, supply, consumer behaviour, and performance indicates that approval rates continued to be lower compared to the same time prior year across all loan types, as lenders were cautious.

This is particularly true among new-to-credit (NTC) consumers, whom lenders typically approach with caution: approval rates for these consumers have reduced from 34% and 28% in March 2020 and 2021 respectively, to 23% in the quarter ending March 2023.Personal loans of over Rs 50,000 comprise 98% of the total personal loan book size in terms of value. While small-ticket personal loans of less than Rs 50,000 are 2% of the personal loan book size and only 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 have other payment obligations that may be prioritized” , the report said.


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