Backed by high growth, Indian credit market sitting pretty

The challenging global macroeconomic factors notwithstanding, the credit demand in the fourth quarter ending December 2022 remained robust. In fact, India’s credit market is on a sustained growth trajectory while the credit performance continues to remain strong. Backed by consumption-led lending, the country’s growth momentum remains high in the credit market. However, in view of the impact of global headwinds, it is crucial to continue to carefully monitor credit risk, especially early delinquencies and leverage ratios. That is precisely what the latest edition of the TransUnion CIBIL Credit Market Indicator (CMI) report suggests. Interestingly, the CMI insights indicate a continued trend of consumers aged between 18 and 30 years, accounting for the greatest share of new credit inquiries, while the share in demand from rural areas has also increased marginally. One should not ignore the fact that CMI is a comprehensive measure of data elements that are summarized monthly to analyze changes in credit market health and are categorized under four pillars: demand, supply, consumer behavior, and performance. These factors are combined into a single, comprehensive indicator, and pillars can also be viewed in more detail individually.

Quite significantly, there has been a marked increase in demand for credit cards and personal loans, indicating growing adoption of consumption-led credit products that provide convenience and liquidity. At the same time, there was a slowdown in demand for home loans, with a -1 per cent year-over-year (YoY) decline in demand and -6 per cent YoY decline in supply. These signal that the prevailing conditions like higher inflation and rising interest rates have impacted consumer sentiment, prompting a conservative approach in taking high ticket loans.

Given the scenario and with demand for consumption-led loan products growing, credit institutions should customise product offerings across age groups and socio-economic categories to enjoy unwavering client loyalty. What is more important, particularly from the lenders’ point of view is that consumers are managing their credit repayments well to ensure continued access to liquidity. During Q4 of 2022, the overall consumer-level serious delinquency (90 days or more past due) generally improved across products, except for credit cards. This suggests that consumers are managing their credit repayments, to hold them in good stead in the tough global macroeconomic conditions that lie ahead.

Experts think that as lenders strategize their profitable growth, they need to identify resilient consumers and continue to leverage credit access while maintaining good performance. Lenders having access to deeper consumer-specific insights can work proactively with the targeted clientele to optimize portfolio profitability. TransUnion CIBIL presented vintage delinquency trends to the credit industry. Early delinquency measured in Q4 2022 for originations from Q2 2022 is lower than the previous year for most products. However, consumer durable loans and credit cards are seeing a gradual increase in early delinquencies. Vintage delinquencies on consumer durable loan originations from Q2 2022 are two times higher than the Q2 2021 figures, while vintage delinquencies on credit cards are also marginally higher for the same period.