Consumer durable loans disbursed by scheduled commercial banks have declining this year, even as most other retail loan categories are growing at a fast clip. This decline appears to be due to consumers increasingly opting to finance purchases of consumer durables through loans from NBFCs and fintech lenders. 

According to RBI, consumer durable loans fell to Rs 9,053 crore in August 2020, during the pandemic. But there was a sharp increase in August 2022 to ₹32,919 crore as consumption revived. Surplus with banks also made these loans easy to come by. But the consumer durable loans of banks have declined since then to ₹21,221 crore by August. 

Surprisingly, most other personal loan categories have registered growth between January and August. While consumer durable loans declined 42.5 per cent in this period, housing loans, credit card loans, and other personal loans recorded growth rates of 30.1 per cent, 16.6 per cent, and 15.9 per cent, respectively. 

Growing demand for goods

In a glaring contradiction, decline in consumer durable loans is accompanied by growing demand for these goods in the country. According to the Trade Promotion Council of India (TPCI), consumer products in India experienced an 8 per cent surge in value for technical consumer goods in first half of 2023. This includes a 7 per cent volume increase in air conditioners, a 6 per cent growth in the volume of washing machines, and a 4 per cent rise in the volume of microwave ovens compared to the corresponding period in 2022. 

The rise in the volume of consumer products, despite a decrease in consumer durable loans, might be attributed to loan disbursements from Non-Banking Financial Corporations (NBFCs) and fintech platforms. According to TransUnion CIBIL’s report, The Rise and Evolution of India’s Digital Finance, data from FY23 reveal that NBFCs, private banks, and fintech companies collectively disbursed the highest share of consumer durable loans at 31 per cent, 20 per cent, and 15 per cent, respectively. In contrast, public sector banks contributed a mere 1 per cent to consumer durable loans. 

Anubhuti Sahay, the head of South Asia economics research at Standard Chartered Bank, highlights, “Presently, lending to consumer sector in India occurs not just within the banking sector, but also through NBFCs and fintech platforms. These avenues, including online payments and EMIs, contribute to sustained consumer durable loan growth.” 

Alok Kumar Mishra, who teaches Economics at the University of Hyderabad, holds a differing opinion. He contends, “The volume of loans or payments from NBFCs and fintechs cannot be equated to what public sector banks offer. Their recovery methods significantly differ from traditional banking, often exceeding regulated boundaries and resorting to problematic means due to a lack of stringent oversight.”