Retail credit has experienced an increase in serious delinquencies: Report

Loans against property and credit cards are the most affected segments

Retail credit has experienced an increase in serious delinquencies, with loans against property and credit cards being the most affected segments, a report by a credit information bureau said on Wednesday.

As of August-end, the loans overdue for over 90 days in the credit card segment were 0.51 per cent up from the year-ago period at 2.32 per cent, while the same for the loans against property was 0.34 per cent up at 3.96 per cent, Transunion Cibil said.

"Credit cards delinquency rates reflected the wider economic slowdown, salary cuts and job losses caused by the pandemic. Further, credit cards often have a lower payment priority, with consumers choosing to pay other credit accounts first," the bureau said.

For LAP, a product generally used by small businesses as working capital finance, delinquencies had already been on the rise prior to COVID-19.

It, however, said that the delinquency picture is "complicated" and will take time to emerge as the lagged effect of financial conditions, relief programs supported by lenders, and shifts in payment priorities of consumers play out.

It can be noted that the Reserve Bank had announced a moratorium on loan repayments for six months ending August 2020, under which a loan account cannot be termed as a non-performing asset (NPA) for non-payment.

The central bank had later introduced a loan restructuring scheme across all categories for borrowers impacted by the pandemic. However, bankers have been saying that there has not been a high amount of requests for loan recasts.

The bureau said in the case of auto loans and personal loan segments, there has been an improvement from a delinquency perspective.

From a lending institution perspective, retail loans extended by non-bank finance companies (NBFCs), which typically take riskier loan bets, reported a 0.49 per cent increase in delinquencies in August as compared with the year-ago period, while the same improved 0.28 per cent for state-run lenders and 0.10 per cent for their private sector counterparts.

It said the shape of recovery in retail-credit markets will be very much influenced by the ability to contain the spread of the pandemic along with consumer and lender resiliency.

Retail advances growth for the system slowed to 2.5 per cent in August (compared with the year-ago period of August 2019), as against 8.9 per cent in May this year and 16.7 per cent in February, it said.

The deceleration in balances growth is more pronounced for private banks and NBFCs, it said.

Demand for retail credit has been growing lately and in November, retail credit demand (as measured by inquiry volumes) was back to almost 93 per cent of the levels observed in November 2019, it said.

PSU banks saw the biggest rebound in inquiries in the unlock phase, as they were early in recommencing operations than their peers, while private banks have witnessed a positive growth in inquiry volumes for the first time in November 2020 since February, it said.