The pandemic and its fallout on the economy has made consumer lending riskier for banks even as it has been the only sector to help banks keep their loan books afloat at such times.
The delinquency rates for such loans are going up particularly for private sector banks and NBFCs during the pandemic warned the Reserve Bank of India’s latest financial stability report. At the same time the second wave has also affected demand for such loans with a steep fall in demand in April , it said.
The Reserve Bank’s latest Financial Stability Report notes that the delinquency rates for consumer credit in private sector banks doubled from 1.2 per cent in January 2020 to 2.4 per cent in January 2021. While for NBFCs it went up from 5.3 per cent to 6.7 per cent in the same period. Overall consumer credit deteriorated after the loan moratorium programme came to an end in September 2020.
“While banks and other financial institutions have resilient capital and liquidity buffers, and balance sheet stress remains moderate in spite of the pandemic, close monitoring of MSME and retail credit portfolios is warranted” the report said.
Consumer credit includes home loans, loans against property, auto loans, two-wheeler loans, commercial vehicle loans, construction equipment loans, personal loans, credit cards, business loans, consumer durable loans, education loans and gold loans.
The overall demand for consumer credit in terms of inquiries had stabilised in Q4’2020-21 after a sharp rebound during the festive season in Q3’2020-21 after the first COVID-19 wave receded. But the second wave, however, has sharply affected credit demand, with a steep fall in inquiries across product categories in April 2021. Growth in credit active consumers- consumers with at least one outstanding credit account- and, outstanding balances, however, remains sluggish compared to the previous comparable period. For unsecured loans, the fastest growing category in this segment for example, it fell from 39.4 per cent in January’20 to 6.5 per cent on FY’21. For home , which accounts for a major chunk this segment, the growth rate of credit active consumers slowed from 12.03 per cent to 0.3 per cent during the period.
On a positive note, loan inquiries are more from better rated borrowers. “Loan approval rates remain healthy as the risk tier composition of inquiries shows a distinct tilt towards better rated customers” the central bank’s report said.