Retail credit growth moderates in September quarter: Cibil

However, origination volumes for all other retail loan products declined YoY in the quarter ended September 2024. Total origination values for consumption-driven loans also took a hit, with personal loans down 5 per cent, credit cards down 20 per cent, and consumer durable loans declining 3 per cent, a Cibil report said.

Cibil said the slowdown in consumption-led loans led to a decline in the overall supply pillar of the Credit Market Index (CMI) measure, which fell to a three-year low of 91 in the quarter ended September 2024, from 95 in the same quarter last year. The trend suggests that Indian consumers are becoming increasingly cautious in their borrowing habits, while lenders are also turning more risk-averse. The development may have implications for the overall economy, as consumer spending is a key driver of growth.

TransUnion Cibil MD and CEO Bhavesh Jain said several factors including challenging global economic conditions, slowing urban consumption and regulatory measures designed to stabilize the credit-deposit ratio, have affected the credit market in India. “The slowdown in consumer credit demand, coupled with a decline in loan originations by lenders, has resulted in a cooling of overall retail credit growth. Identifying eligible and lower risk consumers that can afford to service their credit obligations, will be critical for the sustained growth of credit and the economy,” he said.

Both loan enquiry (a measure of consumer demand) and origination (in part, a measure of lender supply) volumes of consumption-driven loans declined year-over-year (YoY) in the quarter ending September 2024, except for personal loans, the report said.

“Faced with current market dynamics, lenders are taking a measured approach to risk management with a general cooling of origination volumes. In addition, where they are granting non-consumption loans, these are typically for higher amounts catering to high income consumers,” Jain said.

Although still significant, portfolio balances grew at a slower rate YoY in September 2024 for all retail credit products, except credit cards which grew at 34 per cent YoY in September 24 as compared to 26 per cent in September 23. There has been a cooling off in new loan originations for personal loans and consumer durables loans since quarter ending March 24. This may have led to consumers increasing their spending on their existing credit cards to finance their consumption needs, Cibil said.

The marked increase in credit card spending indicates its expanding acceptance among consumers, not only for transactions but also as a tool to access credit. This may be an opportunity for lenders to identify consumers who require additional credit for their consumption and aspirational goals, and service them with customized solutions that are better suited and affordable for them.

“These customized credit offers should focus on helping the consumer fulfill their needs effectively while also supporting them in building a stronger credit profile,” Jain said. “By using more comprehensive data insights to understand the changing dynamics of consumer spending and credit usage, lenders can devise dynamic strategies better suited to evolving market conditions while enhancing customer loyalty.”

Achieving the dual objectives of sustained credit growth while simultaneously maintaining asset quality requires issued loans to be repaid on time to help minimize default risks and preserve financial stability. Balance-level serious delinquencies (measured as 90 days or more past due) by product improved for secured loan products but deteriorated for consumption-led loans, it said.

TransUnion CIBIL analysed the delinquency pattern of borrowers who hold both consumption-led loans and secured loans, which at 3.7 crore accounted for 15 per cent of retail borrowers. The delinquency trend for these consumers shows that 4.1 per cent of these consumers have at least one Equated Monthly Instalment (EMI) outstanding in only consumption loans. This share has increased from 3.9 per cent for same period the previous year.

Cibil said delinquency in consumption loans is an early sign of stress for borrower which may lead to delinquency in secured loans in future. This trend highlights the need for lenders to actively monitor the credit behaviour of consumers with multiple types of loans, to limit potential risk in the secured loan portfolios of consumers.