Delinquencies in the loan against property (LAP) segment have increased 73 basis points year-over-year to 3.03 per cent in the quarter ended September of calendar year 2018, says a report by Transunion Cibil, a credit information bureau.
“The rise in LAP balance-level delinquency rates is significant because of the much larger average balances for this loan type, and bears watching by lenders who are active in this segment,” it cautioned. Loans against property, which constitute 1.6 million total accounts, increased by 33 per cent in the last year. While the number of these loans in the marketplace is much smaller than for cards and personal loans, the average balance of these accounts makes this product significant in the retail lending landscape, Cibil said.
Indian LAP borrowers held average balances of Rs 34,93,000 in September quarter of 2018. Comparatively, the average balance of loan size for personal loans per borrower was Rs 252,000, and the average balance per credit card holder was Rs 46,000.
“While India continues to be in growth mode, lenders must judiciously monitor their risk management processes. For instance, the number of loans against property has risen at a rapid rate. At the same time, delinquency rates for these loans have now crossed 3 per cent for the first time in several years. Lenders must now determine if the rapid demand for these loans, which are an excellent revenue generator, outweighs the recent delinquency increases,” said Yogendra Singh, vice president of Research and Consulting for TransUnion CIBIL.
Cibil said retail outstanding balances increased by 21 per cent since last year and number of accounts rose by 28 per cent in the same timeframe, according to CIBIL. The increases in balances and accounts were similar as those seen last year in the same quarter when balances rose 22 per cent and accounts grew by 23 per cent on an annual basis, it said.
“We are in the midst of a robust Indian consumer credit market expansion where we are seeing immense growth in both the number of accounts and balances for most major credit products, including credit cards and personal loans,” Singh said. “As we’ve observed in the past, the growth has been primarily driven by those consumers living in major Indian states. This quarter, we also noted that Millennals and Generation X consumers are driving much of this growth and comprise well over half of all accounts and balances.”
The report said consumers in the 30-49 years age group are a mainstay of the retail lending market. In the September 2018 quarter, this age group comprised a majority of the total number of credit-active consumers (56 per cent) and a higher percentage of total balances (60 per cent), overshadowing the shares of all other age groups.
Cibil said the majority share of this age group in the overall retail credit market is not surprising in light of their life stages. Many consumers in their 30s are starting and growing families, and need for credit to finance the purchase of vehicles and homes as well as household goods. Further, these consumers are at more mature career stages with income levels that can support taking on consumer debt. The report also noted that the youngest borrowers are slowly making inroads into the consumer credit market.