A reason for the rise in defaults may be the rapidly changing and uncertain economic scenario influenced by global challenges in some sectors and evolving consumer behaviour, says an expert.
Growth momentum of India’s retail credit remained high during the April-June 2023 quarter; however, credit card defaults increase; check why
Though the growth momentum of India’s retail credit remained high during the April-June 2023 quarter, credit card payment defaults have increased, according to a report by TransUnion CIBIL. It added that unsecured loans continue to scale growth backed by small-ticket loans.
According to the report, titled’Credit Market Indicator’, serious delinquency (with payment overdue of over 90 days) in credit cards jumped by 66 basis points year-on-year to 2.94 per cent during the June 2023 quarter. A basis point is 100th of a percentage point.
However, in other credit categories, the situation has improved. Though consumer durable loans remained unchanged in credit defaults, other categories like home loans, loans against property, auto loans, two-wheeler loans and personal loans saw a decline in delinquencies in the range of (-)4 bps and (-)119 bps.
Delinquency refers to a situation where the borrower is overdue on repayments.
Rajesh Kumar, MD and CEO of TransUnion CIBIL, said, “Digital and information-oriented lending is fueling the growth of retail credit, especially in unsecured consumption-led products, which grew at a compounded annual growth rate (CAGR) of 47 per cent from the quarter ending March 2021 to March 2023. Responsible lending, continuous portfolio monitoring and controlling concentration risk will be essential for sustaining the growth momentum.”
According to the report, the Credit Market Indicator for Q1 of 2023 reached a level of 102 in March 2023, up from 94 in the same period in 2022, and continuing the overall upward trend seen in credit market activity since mid-2021.
Originations, a measure of new accounts opened and a function of both consumer demand and lender supply, continue to remain buoyant. However, approval rates continued to be lower compared to the same time prior year across all loan types, as lenders were cautious.
This is particularly true among new-to-credit (NTC) consumers, whom lenders typically approach with caution: approval rates for these consumers have reduced from 34 per cent and 28 per cent in March 2020 and 2021 respectively, to 23 per cent in the quarter ending March 2023, the report said.
Anand Agrawal, co-founder and chief product & technology officer of Credgenics, said, “The sustained growth in retail credit demand is a positive indicator of strength in the economy and increased consumer spending. However, the rise in credit card defaults and reduction in approval for NTC is alarming. It needs our immediate attention so that the risk remains manageable without compromising on growth.”
He added that a possible explanation for the increase in defaults could be the rapidly changing and uncertain economic scenario influenced by global challenges in some sectors and evolving consumer behaviour. “With the growing popularity of digital commerce and rapid growth of online transactions, consumers are getting used to unprecedented ease in making purchases and availing finance. This, unfortunately, also presents a greater risk of impulsive buying and a potential lack of financial discipline.”
