Unsecured retail loans grew at a CAGR (compounded annual growth rate) of 47 per cent from March 2021 to March 2023 led by digital and information-oriented small ticket lending, according to TransUnion CIBIL’s Credit Market Indicator (CMI) report.

The report tracks credit market health via parameters comprising demand, supply, consumer behaviour and performance. The CMI for Q4 FY23 was at 102, up from 94 a year ago, further bolstering the upward trend in credit market activity since mid-2021.

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All credit products, barring mortgage loans, registered double digit growth in FY23, with outstanding advances for product categories rising 14-38 per cent YoY.

Home loans down

The slump in home loans was led by the affordable housing segment -- home loans with sanction amount of less than ₹25 lakh, wherein volume of loans fell by 16 per cent and volume of loans sanctioned by 15 per cent YoY. Home loans of over ₹25 lakh saw a volume increase of 1 per cent and value increase of 6 per cent.

Overall loan originations, or new accounts opened, remained buoyant, but approval rates fell YoY across loan categories as lenders turned more cautious. Approval rates for new-to-credit customers declined steadily to 23 per cent in Q4 FY23 from 34 per cent as of March 2020.

“‘Sachetized’ financial products that comprise smaller loans of less than ₹50,000 are increasingly popular as they are affordable and easier to access. These products have fueled credit adoption among younger consumers and underserved consumers in semi-urban and rural areas,” the report said.

Portfolio performance

Delinquencies, measured as 90 days-past-due or more, improved across product categories, except for credit cards, which saw an increase of 66 bps to 2.94 per cent.

Early (vintage) delinquency measured on loan originations for Q2 FY23, continued to remain stable for most products other than personal loans, which rose to 4 per cent from 3 per cent a year ago.

Vintage delinquencies on small-ticket loans increased to 8.9 per cent in Q2 FY23 from 8.6 per cent a quarter ago, whereas on high-ticket personal loans, fell to 3.7 per cent from 4.1 per cent.

Vintage delinquency is measured as a percentage of sanction amounts on accounts which show one instance of missed payment during the first six months from origination.

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Personal loans

Personal loans of over ₹50,000 comprise 98 per cent of the total personal loan book, whereas small ticket loans comprise 2 per cent of personal loans and 0.3 per cent of retail loans at an industry level.

“Even though delinquencies on small-ticket personal loans have a marginal impact on the personal loan portfolio, these need to be monitored closely, especially because consumers may have other payment obligations that may be prioritised,” it said.