Growth in India’s consumer credit market continued to decelerate in the second quarter ended June 2019. The loans disbursed by non-banking financial companies (NBFCs) remained under stress, with a recent portfolio shift to higher-risk unsecured credit, according to TransUnion CIBIL Industry Insights Report (IIR).
Consumer credit balances across all major credit products grew 17.1% year-on-year (YoY) in Q2 2019, compared to 23.5% YoY in Q2 2018. Growth in credit cards and personal loans significantly outpaced increases in auto loans, home loans and loans against property (LAP).
Robust balance and origination growth in the unsecured lending categories of credit cards and personal loans also continued in Q2 2019.
A healthy 30.2% YoY increase in credit card origination volumes in Q2 2019 led to strong 29.5% YoY growth in the total number of credit card accounts in Q2 2019. Over the same period, total credit card balances increased by 34.3%, CIBIL said.
During Q2 2019, there was a shift in credit card originations to higher-risk tiers. In Q2 2019, 32.1% of card originations were to consumers in below-prime risk tiers (sub prime and near prime), compared to 26.4% in Q2 2018.
Personal loan balances grew 35.0% YoY in Q2 2019, with origination volumes accelerating sharply – up 139.4% YoY in Q2 2019. NBFCs continued to be the primary driver of growth in this category. NBFC personal loan balances increased 51.4% YoY in Q2 2019,
NBFCs, which have played a key role in consumer credit growth in recent years, saw slower growth in the second quarter compared to banks. NBFCs continued to face difficult funding challenges and consequently have been shifting their originations strategy away from larger-value loans to smaller-ticket personal loans.
“The NBFC liquidity crisis is becoming a serious concern, as it could have negative ramifications on wider economic activity,” said Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL.
Portfolio delinquency rates for most consumer credit products declined on a YoY basis in Q2 2019, the exception being for Loan Against Property (LAP). However, it can happen that high origination growth can mask portfolio-level delinquencies.
To address this concern, TransUnion studied the delinquency dynamics of several fixed cohorts of accounts. This static pool analysis—also known as vintage analysis—confirmed the general improvement in delinquency rates YoY, but did reveal performance deterioration for smaller value personal loans and auto loans issued by NBFCs.
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