Unsecured lending picking up amidst falling delinquencies

Banks are seeing a higher pick-up in unsecured personal loans from rural and semi-urban areas. Significantly the delinquencies in such loans is seen to be minimal adding comfort to the lenders.

Borrowers inquiring about personal loans increased by 141 percent for the three month period ending May 2022 compared to 93 percent growth in inquiries for the three month period ended March’ 2022, according to data released by credit bureau Transunion Cibil.

The latest data shows a continued growth in origination volumes for most retail loan products, driven by both improvement in demand for these products and lender willingness to advance credit, Transunion Cibil said. Personal loan originations increased 125% year-on-year for the quarter ended March 2022, while credit card outsanding were up 59% and consumer durable loans 21%. Banking sector’s unsecured loan portfolio is Rs 9.16 lakh crore as of end May according to the latest RBI data.

Significantly, retail loans are picking up across geographies and the rise of rural and semi-urban borrowers is significant. Transunion Cibil’s latest March credit monitor indicator (CMI) shows that together these groups now account for almost half -47%- of inquiry volumes, up from 41% in January-March 2020 and 45% in January-March 2021. The latest of 95 is up considerably from its low of 78 in January 2021 and continues to show a consistent increase, implying a strong pick-up in retail credit.

The CMI is a comprehensive measure of data elements that are summarized on a monthly basis to analyze changes in credit market health and are categorized under four pillars: demand, supply, consumer behaviour and performance. These factors are combined into a single indicator, and pillars can also be viewed in more detail individually.

Delinquencies have come down across all major credit products, a positive indicator for sustainable and profitable growth for lenders. Delinquencies have fallen the most for consumer durable loans =nu 168 bps( one basis point of bpd id 0.01 per cent) followed by two wheeler loans- 135 bps and loan against property-108 bps. Delinquencies for unsecured personal loans fell 54 bps.

” Encouragingly, whilst demand and lending balances increased overall, delinquencies have also improved” said Rajesh Kumar, managing director and CEO, TransUnion Cibil. “At the same time, measures of financial inclusion have also improved. This suggests that consumers are increasingly able to service their borrowing commitments whilst also being able to access existing credit or apply for new credit facilities”.

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