Lenders court risky borrowers to push up retail loan growth

Mumbai: Banks and non-banking financial companies (NBFCs) are increasingly focussing on lending to riskier segments such as credit cards and personal loans to maintain their topline, as growth in home, auto loans and loan against property (LAP) segments decline. With economic growth plunging to a six-year low and unemployment rising to a 45-year high, growth in consumer loans decelerated in the second quarter, driven primarily by secured lending products.

According to a latest TransUnion Cibil Industry Insights Report, consumer loans grew 17.1 per cent year-on-year (YoY) in Q2 2019, compared to 23.5 per cent in Q2 2018. Growth in credit cards and personal loans significantly outpaced growth witnessed in auto loans, home loans and loans against property.

At the close of Q2 2019, a record 2.77 crore consumers held a credit card, driving outstanding balances to almost Rs 1 lakh crore. Origination volumes continue to exhibit a robust growth of 30.2 per cent to 36 lakh. During Q2 2019, there was a shift in credit card originations to higher risk tiers observed Cibil. In Q2 2019, 32.1 per cent of card originations were to consumers with poor credit scores (below- prime risk tiers) compared to 26.4 per cent in Q2 2018. Similarly in the case of personal loans, the data showed a shift in loan origination towards high risk tiers with 44.8 per cent  of total originations in Q2 2019 to borrowers in below prime segment (sub-prime and near prime) compared to 36.4 per cent in Q2 2018. Near prime borrowers are those with credit scores between 650 and 700, while sub-prime borrowers are those with scores between 300 and 650. According to the report, almost 50 per cent of the NBFC originations in Q2 2019 were to borrowers in below-prime segments, which represented an increase of 8.5 per cent  over Q2 2018.

On the other hand, auto loans recorded the slowest rate of growth of all major lending categories in Q2 2019. Auto loan balances grew 10.9 per cent YoY in Q2 2019 to Rs 4.17 lakh crore, down significantly from growth of 23.3 per cent in Q2 2018. This was primarily due to soft results in public and private sector lenders, whose balances grew at 8.3 per cent and 10.1 per cent, respectively, in Q2 2019, compared to 21.4 per cent and 26 per cent in Q2 2018.

In the housing market, originations volumes and balances declined YoY in Q2 2019, implying likely soft market conditions going forward. Home loan delinquencies saw a small YoY improvement.LAP origination balances declined by 20 per cent YoY.