A report by rating agency Crisil and private lender ICICI Bank says the retail loan book of banks and non-banking financial companies (NBFCs) will double to Rs 96 trillion by March 2024 from Rs 48 trillion at the end of FY19.
The growth will be fuelled by greater demand for private consumption (namely home, car, consumer durables, and credit cards), willingness of consumers to take loans, increased availability of various consumer data, better use of data analytics and regulatory steps propelling growth in low-cost housing loans and micro, small & medium enterprises loans.
The report titled ‘Mining the Golden Opportunity in Retail Loans’ says the mortgage loans market in the normal and low-cost housing space, along with loan against property, is expected to double to Rs 46.1 trillion in FY24 from Rs 23.4 trillion in FY19. Unsecured loans such as personal loans and credit cards are set to rise over two fold to Rs 13.8 trillion in FY24 from Rs 5 trillion in FY19.
Loans to MSMEs are also likely to double to Rs 13.2 trillion from Rs 6.6 trillion in FY19. Gold loans will inch up to Rs 3.9 trillion from Rs 2.8 trillion in FY19 and educational loan will swell to Rs 1.4 trillion in FY24 from Rs 90,000 crore in FY19. Loans for commercial vehicles, four- and two-wheelers are tipped to nearly double to Rs 17.5 trillion from Rs 9 trillion in FY19.
Speaking at the launch of the report, Anup Bagchi, executive director of ICICI Bank said: “We think that five pillars that are going to support expansion of the market are: (1) greater information availability progressively reducing the risk in lending (2) lower costs for customers due to intensifying competition (3) regulatory and government initiatives (such as the proposed public credit registry, loan co-origination by banks and non-banking financial companies, boost to affordable housing and ironing out of glitches in lending to MSMEs) (4) fivefold increase in digital lending to Rs 15 trillion, wherein loans are sourced, underwritten and sanctioned digitally, lowering costs for financiers, and (5) reduction in operating costs due to greater usage of technology and data analytics which will, in turn, boost profitability.”
In five years, financiers will give a big thrust to digital payments. Digital lending will account for 16 per cent of retail loans by FY24, up from 6 per cent currently. Such loans are forecast to increase to Rs 15 trillion at a five-year CAGR of 41 per cent, representing about 16% of retail lending in FY24. Banks would dominate the market, accounting for 77 per cent of all digital loans. Currently, unsecured loans make the largest segment in this space. Within the unsecured domain, consumer durables have the highest share of digital lending, followed by credit cards and personal loans.
Growth is expected to be higher in smaller towns outside the top 50 cities. Intense competition in metros and tier-1 cities will prompt lenders to focus more on smaller geographies. The report suggests this is likely to raise the cost up slightly, which will be more than compensated by lower operational expenses owing to usage of technology.
Amish Mehta, Chief Operating Officer and President, Crisil said, “We expect players with a strong funding franchise, distribution heft, superior underwriting skills, strong focus on technology and balanced mix of secured and unsecured loans to be ahead of the pack in the retail loans sweepstakes. The top five players are foreseen continuing their dominance of the market, across asset classes. For example, in housing loans, despite the market having over 100 players, the top five players alone have a cumulative market share of over 50 per cent.”
Further, new private banks are also expected to gain market share from their public sector peers. The entry of new types of players is likely in the market targeting specific segments, in line with global trends, according to the report.