Retail Credit Growth Moderated as Lenders Tightened Supply in the Quarter Ending September 2023

• Credit growth slowed across all consumption-led loan products, while home loan growth remained stagnant
• Originations among new-to-credit consumers continued to decline
• Improved delinquency performance across most products, except marginal deterioration in personal loans and credit cards

Mumbai: India’s retail lending showed moderated growth during quarter ending September 2023 as financial institutions tightened supply of credit, especially on consumption-led products like credit card, consumer durable loans and personal loans. Credit performance, as measured by balance-level delinquencies, improved across most products, apart from credit cards and personal loans. These were some of the findings of the latest edition of the TransUnion CIBIL Credit Market Indicator (CMI)* report for September 2023.

The CMI is a comprehensive measure of data elements that are summarized monthly to analyse changes in credit market health, categorized under four pillars: demand, supply, consumer behaviour, and performance. These factors are combined into a single, comprehensive indicator, and pillars can also be viewed in more detail individually. The CMI for September 2023 was 103, which was four points higher than September 2022 and continues the rising trend from a low of 88 in September 2021.

Chart 1: Credit Market Indicator (CMI) September 2019- September 2023

Speaking on the findings of the September 2023 CMI report, the MD and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “The latest CMI indicates continued stability in the Indian consumer credit market, as credit institutions aligned and responded effectively to the market trends over the last year. This stability now provides a strong bedrock for driving balanced and sustained credit growth across products. Intensive monitoring of portfolios, while also finding and funding the lower-risk consumers who deserve financial opportunities for fulfilling their aspirations, can set India’s credit industry on the path for long term growth.”

The CMI findings showed a year-over-year (YoY) decline in the growth rate of overall originations, resulting in a marginal decline in the CMI supply index from 98 in September 2022 to 95 in September 2023. Growth of consumption-led credit products moderated in the quarter ending September 2023, including personal loans.

Table 1: YoY Growth in Originations*
Product Jul-Sept 2022 Jul-Sept 2023
Home Loan 13% 0%
LAP 32% 14%
Auto Loan 13% 6%
Two-Wheeler Loan 20% 16%
Personal Loan 72% 28%
Credit Card 74% 5%
Consumer Durable Loan 39% 2%

Home loans growth impacted due to drop in lower value home loans
Home loans have shown 9% growth in value in the quarter ending September 2023, compared to the same period in the previous year. However, in terms of volume, low value home loans (< INR 35 lakhs) which form 76% of originations, have dropped by 4%, impacting overall home loan originations growth.
Table 2: YoY Growth in Home Loan Originations
Home Loan Value Share of Origination Volumes YOY Growth
Sanction Amount Band INR <35 Lacs 78% -4%
INR 35 – 75 Lacs 18% 8%
INR >= 75 Lacs 7% 23%

Home loans of INR 75 lakhs and above in value, which form 7% of the overall origination volume, have shown a significant 23% YoY growth. This shift in ticket sizes can be linked to the upward trend in property prices in 2023.

Decline in originations for new-to-credit consumers
It is important to note that the share of new-to-credit (NTC) consumers in originations dropped from 17% in the quarter ending September 2022 to 14% in the quarter ending September 2023, resulting in a decrease in share of NTC origination volumes from 12% in the quarter ending September 2022 to 10% in the quarter ending September 2023.

Table 3: New-to-credit origination volumes
Jul-Sept 2022 Jul-Sept 2023 YoY change
Number of NTC trades
(million) 10.39 10.03 -3%
Share of Origination Volume 12% 10% -2%

India’s evolving demography includes youth, women and consumers in the semi urban and rural geographies who typically make up a larger share of first-time credit seekers. The decline in origination volumes for new-to-credit consumers is detrimental to the development of these consumer segments. Increased access to credit opportunities for younger borrowers, women and consumers from rural geographies has a direct correlation to improvement in the quality of life and financial empowerment of these consumers, who are the drivers of the country’s economic engine.

Delinquencies on personal loans and credit card deteriorated marginally, while credit performance continued to improve across most products

Overall balance-level serious delinquencies (measured as 90 days or more past due) continued to improve across product categories, except for marginal deterioration in credit cards and personal loans. This improvement is reflected in the CMI indicator for Consumer Performance, which went up by 11 points from 90 in Sep 2022 to 101 in Sep 2023.

Table 3: YoY Improvement in Balance-Level Delinquencies**
Product Jul-Sept 2023* YOY Change (bps)
Home Loan 1.01% -20
LAP 1.93% -83
Auto Loan 0.64% -19
Two-Wheeler Loan 2.12% -28
Personal Loan 0.87% 10
Credit Card 1.68% 23
Consumer Durable Loan 1.11% -56
*Balance level delinquencies exclude ARCs

Despite a 27% YoY growth in outstanding balances for personal loans, the overall share of these loans in the retail credit portfolio has grown marginally by 20 bps.

“Opportunities for growth in India’s credit sector are abundant with emerging young consumers, untapped new-to-credit consumers as well as growth in rural and semi urban consumer bases. To tap these opportunities, lenders must identify deserving consumers and drive access to credit for them,” Mr Kumar said. “At the same time lenders must continue to focus on strong underwriting practices and regular and nuanced monitoring of consumer behaviour to drive sustained credit growth and profitability.”