CIBIL flags risks of stress spreading from unsecured to secured loans

Rising delinquencies in consumption-led loans come amid credit slowdown

Credit information bureau TransUnion CIBIL today warned that the trend of rising defaults in consumption-led loans — credit cards, personal loans, and consumer durable loans — in India risks spreading to secured credit, i.e., loans with collateral. Lenders need to step up monitoring of the credit behaviour of consumers with multiple types of loans to limit potential risks in their secured loan books.

 

Balance-level serious delinquencies (measured as 90 days or more past due) by product improved for secured loan products but deteriorated for consumption-led loans. The bureau analysed the delinquency patterns of borrowers who hold both consumption-led loans and secured loans. These borrowers, numbering 37 million, account for 15 per cent of retail borrowers.

 

The delinquency trend for these consumers showed that 4.1 per cent have at least one Equated Monthly Instalment (EMI) outstanding in only consumption loans. This share has increased from 3.9 per cent during the same period the previous year. The credit information bureau today released findings from its Credit Market Indicator (CMI) for September 2024.

 

TransUnion CIBIL stated that delinquency in consumption loans is an early sign of stress for borrowers, which may lead to delinquency in secured loans in the future. This trend highlights the need for lenders to actively monitor the credit behaviour of consumers with multiple types of loans to limit potential risks in secured loan portfolios.

 

India’s retail credit growth continued to moderate in the quarter ending September 2024 due to a general cooling in the rate of credit demand growth and a decrease in credit supply across most loan products.

 

Additionally, credit performance was mixed, with consumption-led loans — defined as credit cards, personal loans, and consumer durable loans — showing deterioration compared to the same period in 2023.

 

Bhavesh Jain, managing director and chief executive of TransUnion CIBIL, said, “Several factors, including challenging global economic conditions, slowing urban consumption, and regulatory measures designed to stabilise the credit-deposit ratio, have affected the credit market in India.”

 

The slowdown in consumer credit demand, coupled with a decline in loan originations by lenders, has resulted in a cooling of overall retail credit growth. Identifying eligible and lower-risk consumers who can afford to service their credit obligations will be critical for the sustained growth of credit and the economy, he added.

 

The CMI analyses changes in credit market health, categorised under four pillars: demand, supply, consumer behaviour, and performance.

 

The CMI for September 2024 was 100, lower than 103 in September 2023. While the indicator has remained consistently above 100 since September 2022, the cooling in credit demand along with the contraction in credit supply has led to continued moderation, it added.