According to TransUnion CIBIL’s Credit Market Indicator (CMI) report, unsecured retail loans experienced a significant growth rate of 47 percent from March 2021 to March 2023. This growth was primarily driven by digital lending and information-oriented small ticket loans. The CMI report tracks various parameters such as demand, supply, consumer behavior, and performance to assess the health of the credit market. The CMI for Q4 FY23 reached 102, indicating an upward trend in credit market activity since mid-2021, compared to 94 a year ago.
Credit Market Trends in FY23: Double-Digit Growth Across Credit Products, Home Loans Experience Decline
In the fiscal year 2023, all credit products, except for mortgage loans, witnessed double-digit growth, with outstanding advances for different product categories increasing by 14-38 percent year-on-year. However, home loans experienced a decline, particularly in the affordable housing segment where loans with a sanction amount of less than ₹25 lakh saw a volume decrease of 16 percent and a sanction decrease of 15 percent year-on-year. On the other hand, home loans with amounts over ₹25 lakh showed a volume increase of 1 percent and a value increase of 6 percent.
Although overall loan originations remained strong, approval rates declined year-on-year across various loan categories as lenders adopted a more cautious approach. Approval rates for new-to-credit customers decreased steadily to 23 percent in Q4 FY23 from 34 percent in March 2020.
The report highlighted the growing popularity of “sachetized” financial products, which include smaller loans of less than ₹50,000. These products are affordable and easily accessible, contributing to increased credit adoption among younger consumers and underserved individuals in semi-urban and rural areas.
Credit Portfolio Performance in FY23: Delinquencies Improve, Except for Credit Cards; Focus on Monitoring Small-Ticket Personal Loans
In terms of portfolio performance, delinquencies, measured as 90 days-past-due or more, improved across most product categories, except for credit cards, which saw an increase of 66 basis points to 2.94 percent. Early delinquency rates remained stable for most products, except for personal loans, where it rose to 4 percent from 3 percent a year ago.
The report also mentioned that vintage delinquencies on small-ticket loans slightly increased to 8.9 percent in Q2 FY23, while on high-ticket personal loans, it decreased to 3.7 percent from 4.1 percent. Vintage delinquency is calculated as a percentage of sanction amounts on accounts that have missed payments within the first six months from origination.
Regarding personal loans, those with amounts over ₹50,000 accounted for 98 percent of the total personal loan book, while small ticket loans comprised 2 percent of personal loans and 0.3 percent of retail loans at the industry level. The report emphasized the need to closely monitor delinquencies on small-ticket personal loans, as even though they have a marginal impact on the overall portfolio, consumers may have other payment obligations that need to be prioritized.
