‘Retail credit growth continues to moderate across most products’: TransUnion CIBIL CEO

Retail credit growth continued to moderate across most products. Several factors including challenging global economic conditions, slowing urban consumption and regulatory measures designed to stabilise the credit-deposit ratio, may 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 who can afford to service their credit obligations will be critical for the sustained growth of credit and the economy.

There are reports that microfinance NPAs have risen to Rs 50,000 crore. Is there a concern in the MFI segment?

Yes, the non-performing assets (NPAs) in the microfinance sector have increased to Rs 51,000 crore. At present, microfinance institutions (MFIs) function as high-engagement businesses, where the loan disbursals may be based on subjective underwriting and collection strategies, based on individual lenders’ processes and policies. By utilising advanced data analytics, lenders can evaluate MFIs’ creditworthiness more precisely, thereby reducing the potential risk of defaults. Furthermore, it facilitates enhanced monitoring of loan performance and improved customer behaviour.

Additionally, financial literacy initiatives can inform borrowers about financial management, enabling them to make well-informed decisions and decreasing the likelihood of over-indebtedness.

Credit card use and outstanding have shot up in the last one year. What are the reasons for this surge?

Although still significant, portfolio balances grew at a slower rate y-o-y (year-on-year) in December 2024 for all retail credit products, except credit cards which grew at 24 per cent y-o-y. There has been a cooling off in new loan originations for personal loans and consumer durables loans since the quarter ending March 24. This may have led to consumers increasing their spending on their existing credit cards to finance their consumption needs.

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 customised solutions that are better suited and affordable for them. These customised credit offers should focus on helping the consumer fulfil their needs effectively while also supporting them in building a stronger credit profile.

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.

Have NPAs in the credit card segment risen in the last ten months?

Credit performance showed a mixed picture with balance-level delinquencies improving for secured loans but deteriorating y-o-y for credit cards. Balance-level delinquencies (measured as 90 days or more past due) on credit cards stood at 2 per cent in the December 2024 quarter — a year-on-year change of 31 basis points which is still range bound.

Unsecured lending has moderated in the last couple of months. Is the moderation continuing? What led to the fall in growth?

Faced with current market dynamics, lenders seem to be taking a measured approach to risk management with a general cooling of origination volumes. In addition, it is likely that where they are granting non-consumption loans, these are typically for higher amounts.

Loan origination (a measure of credit supply and in part a measure of credit demand) volumes are positive across all key retail loan products, except home loans and credit cards. However, the origination volume growth is lower on a year-on-year basis, indicating a cautious approach by lenders.

Have delinquency levels in unsecured lending risen in the last 10 months? Can you give us the quantum of increase in absolute numbers as well as in percentage terms?

Achieving the dual objectives of sustained credit growth while simultaneously, maintaining asset quality requires issued loans to be repaid on time to help minimise default risks and preserve financial stability. Balance-level serious delinquency (measured as 90 days or more past due) is around 1.89 per cent of overall retail outstanding as of December 2024. Overall, there has been an improvement of 22 bps from 2.12 per cent in Dec-23, indicating stabilising of delinquencies.

Which loan type shows the maximum delinquencies? Why?

Credit performance for consumption loans has improved sequentially in Dec 2024 as compared to September 2024, even for high-risk consumers. Credit performance showed a mixed picture with balance-level delinquencies improving for secured loans but deteriorating y-o-y for credit cards. This could be because when faced with financial constraints, borrowers generally tend to prioritise payments on life-essential utilities such as home loans and vehicle loans.

What are your observations on the new entrants to the credit market? What are their priorities?

With our country’s steady growth trajectory, a large emerging young consumer base and progressive policies towards the vision of becoming the third largest economy in the world, the scope for increasing credit penetration across the length and breadth of India’s geography is massive. India’s credit industry has a pivotal role to play in helping achieve these growth objectives and all the players including the new entrants can capitalise on this massive market potential.

India has the largest young population in the world, and insights show that approximately 99 million consumers opened their first credit product and became NTC in 2023-24. Of the total credit-eligible population, ie. 18 years and above, Gen Z (born in 1995 and later) has the biggest share at 34 per cent. Hence, this segment is likely to drive credit growth going ahead. This demographic shift underscores the importance of tailoring financial products and services to meet the unique needs and preferences of younger consumers, ensuring sustainable credit growth in the future.

In our view, sustainable credit growth can be achieved by identifying and providing access to credit for these New-to-Credit consumers using information analytics and technology-based solutions. Emerging pockets of deserving consumers exist across India’s socio-economic categories and geographies and will be the channels of profitable growth and financial inclusion.

Do you think MSMEs have adequately tapped the credit market for their fund requirements? What are the problems faced by MSMEs in getting credit?

In our view, MSMEs definitely are the next retail in India, MSMEs represent a significant opportunity for lenders. According to the Ministry of MSME, there are more than 6 crore registered MSMEs on Udyam (portal) and among them, approximately 94 lakh are active borrowers. This segment is critical for economic growth and employment generation. At TransUnion Cibil, we maintain credit information on 3.2 crore MSMEs, largely partnership and proprietorship firms.

One of the reasons for varying borrowing patterns among MSMEs is the nature of their business. Many are trading outfits that buy and sell products, managing repayment cycles to meet their credit needs. These firms often seek credit during festival seasons when demand spikes.

Bridging the demand-supply gap is a priority call-to-action for lenders. With rising demand, improved credit performance and promising economic growth prospects, the time is conducive for lenders to expand their MSME credit portfolios. Lenders can tap into the vast segment by identifying deserving new-to-credit (NTC) MSMEs, connecting with them and customizing credit products for their requirements. The wide spectrum of occupations covered by MSMEs has the potential to catalyse social development through economic empowerment.

What about consumer dispute resolution issues reference updating of credit information of borrowers. Are credit institutions updating data faster? Have you sorted out the issues in the updation process?

Our solutions help create economic opportunity for millions of people in India, and we take our responsibility to drive consumer awareness about credit management very seriously.

The RBI recently mandated improving the frequency of reporting of credit information by credit institutions to CICs (credit information companies) from monthly intervals to a fortnightly basis or shorter intervals. This is a very progressive move which will significantly strengthen the credit information ecosystem. With more frequent data reporting by banks and credit institutions, CICs are able to update credit information faster and this translates into more updated data being available to both consumers and lenders. This also helps in resolving consumer disputes faster based on updated data in credit records.

As per the Credit Information Companies Regulation Act (CICRA) which governs us, CICs are not authorised to make any changes to the data they hold unless confirmed by the credit institution concerned. If a consumer finds any inaccurate information on their credit report, they can raise a dispute with us in several ways including via our website and MYCIBIL app, and also by directly contacting our consumer services helpdesk through email, letter or personal visit to our offices. We raise this dispute with the member credit institution concerned, who sends us correction instructions if they accept the dispute, post which we update the information accordingly.