The shadow banking sector, which so far was struggling with asset-liability management, is now seeing its asset quality deteriorate in the consumer credit segment.
A TransUnion CIBIL report on retail credit trends shows the overall delinquency rate of non-bank finance companies (NBFCs) rose by 50 basis points (bps) from the same period a year before in the third quarter (Q3) of the 2019 calendar year (July, August, September); it rose though the first and second quarters, too. In the same period, delinquency rates for public sector and private sector banks declined by 26 bps and 9 bps, respectively. Overall delinquencies in the consumer credit segment rose by 10 bps in Q3.
Lending by finance companies has slowed as many face issues in raising resources. It has also hit their operations, impacting recovery activity in the field, say executives.
Seconding the observations, Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, said the managements of many NBFCs were engaged in the challenge of raising funds and had less time for recoveries. Field staff at many firms had left after the business slowed substantially or stopped. Naturally, the recoveries took a knock.
In the consumer credit segment, delinquencies have gone down in automobile loans by 22 bps and in personal loans by 5 bps. For loans against property, delinquencies have gone up by 52 bps. For credit cards, up 10 bps. NBFCs have been very active in the personal loan segment and have grown their share o originations in recent years. They continue to focus on acquiring smaller-value ones. In the consumer credit segment, overall origination volumes grew 32.1 per cent year-on-year in Q3, to 7.3 million accounts.
“This growth in origination volumes is primarily driven by NBFCs. NBFCs originated 5.3 mn personal loans in Q3, compared to 1.6 mn in Q3 of CY(calendar year) 2018. Of these, 78 per cent were from the micro segment, with loan size up to Rs 25,000”, the TransUnion CIBIL report said.
Balance level 90+ days past due
Bipin Kabra, director at Eunoia Financial Services, said: "Fintech companies and person-to-person lending platforms are quite active. Also, the cost of reaching to customer has come down substantially due to digital and technological backbone.” Loans are available at one's doorstep and people are also willing to take small-sized and small-duration loans, with less concern at the rate of interest, said Kabra, whose firms advise small and medium sized finance companies on business strategy.
Also, lenders are focusing more on the below-prime borrower segment to drive business growth. There has been a sharp increase in the originations of automobile and personal loans to this category.
“Almost 30.5 per cent of auto loan originations and 34.7 per cent of personal loan originations in Q3 were to borrowers considered below-prime, representing increases of 3.5 per cent and 8.3 per cent, respectively, over Q3 of 2018,” the TransUnion CIBIL report showed.