Amid hopes of a revival in credit demand from the corporate and SME (small and medium-sized enterprises) segments in the coming months, the robust growth in retail credit demand is expected to continue.

According to the credit market indicator (CMI) launched by TransUnion Cibil, the country’s retail credit market is positioned for strong growth with a resurgence in credit demand and supply.

“The latest CMI of 87 in August 2021 (up from 78 in February 2021) indicates the resiliency of India’s credit market, which is back on growth trajectory despite the impact of the second wave of the pandemic,” it said.

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The CMI is a measure of consumer credit health, summarising movements in demand, supply, consumer behaviour, and performance metrics over time into a single indicator.

Festive demand

Inquiry volumes have increased by 54 per cent between February 2021 and October 2021, as economic activity gained momentum. Outstanding balances and credit active consumers grew by eight per cent and seven per cent, respectively, on a year-on-year basis in August this year.

“The increased demand is driven by consumption products (personal loans, credit cards, consumer durable loans),” it further said.

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Credit inquiries touched a record high during the first week of November 2021, backed by festive season demand.

The impact of the festive season was also highlighted in the Reserve Bank of India’s November bulletin, where it noted that Google and Apple mobility indices recorded a marked improvement during October-November.

According to RBI data, non-food bank credit growth accelerated to 6.8 per cent in September 2021, as compared to 5.1 per cent in September 2020, driven by retail, and agriculture and allied activities.

CARE Ratings estimates bank credit growth at 7.5-8 per cent for the fiscal, with a low base effect, economic expansion, extended ECLGS (emergency credit line guarantee scheme) support and retail credit push.


Impact of pandemic

The most pronounced impact, according to the CMI, on retail lending market health was in the first few months of the pandemic, but the market has since become increasingly resilient.

Between February and May 2020, the CMI fell 17 points, from 100 to 83.

In the states where recovery from Covid-19 was faster, there was a corresponding improvement in credit health. For instance, the CMI for Maharashtra increased year-on-year by 4 points in August 2021. In contrast, the CMI of Kerala declined by -12 points during the same period.

Public-sector versus private banks

Significantly, the data indicates that PSU lenders experienced a less negative impact on CMI in the earlier stages of the pandemic because they were among the quickest to resume lending post the initial lockdown. “This resulted in a faster recovery of credit growth for PSU lenders,” it said.

In contrast, due to higher levels of delinquencies and slower recovery in supply — in part due to liquidity constraints — lending by non-banking financial companies saw lower recovery after the first wave of the pandemic.

However, in the most recent period, both NBFC and private-sector lenders have seen a sharp recovery in credit health, primarily because they have adapted to the prevailing conditions, it said.

Outstanding balances of private lenders increased by 15 per cent year-on-year in August due to faster pick-up in credit activity.