Consumer Credit Growth Focused on Consumption Lending

Mumbai, January 15, 2020 – Continued consumer credit growth, concentrated in consumption lending categories including credit cards and personal loans, is the headline finding of the newly-released TransUnion CIBIL CY Q3 2019 Industry Insights Report. During the period, growth in the wider market continued to cool and overall delinquency rates showed a marginal increase, with large variances in performance across product types.

The third quarter results show the continued development of trends seen in the first half of the year, as lenders and consumers continue to adjust to moderating macro-economic conditions.

In Q3 2019, overall balances across all major consumer lending products increased by 13.1% year-on-year (YoY), compared to 23.2% YoY growth the prior year in Q3 2018. Although still strong, this is now the sixth consecutive quarter where growth in credit balances has decelerated. This growth is not uniform across all of the major consumer lending categories. The consumption lending categories of credit cards and personal loans recorded growth rates of 40.7% and 28.0%, respectively, YoY in Q3 2019, whereas auto loans, loans against property (LAP) and home loans recorded comparatively more moderate rates of balance growth at 10.3%, 11.6% and 10.0%, respectively.

Similarly, overall origination volumes grew 32.1% YoY in Q3 2019, but this average belies a much more diverse story across categories as much of the overall growth was driven by a single category. Personal loan new account origination volumes recorded dramatic YoY growth of 133.9% in Q3 2019 as consumer demand for this credit product continued to accelerate. Non-banking financial companies (NBFCs), which have grown their share of personal loan originations in recent years, continue to focus on acquiring smaller value personal loans. The average ticket size (ATS) of NBFC personal loans dropped YoY to INR 37 thousand in Q3 2019 from INR 94 thousand in Q3 2018. Looking at originations growth of other products, credit card origination volumes grew a healthy 20.9% YoY in Q3 2019, while LAP origination volumes grew marginally by 1.2% YoY in Q3 2019. Meanwhile, home loans (-12.9%) and auto loans (-1.0%) saw YoY declines in originations.

Growth in overall origination balances of installment credit products remained broadly flat in Q3 2019, compared to an increase of 15.1% in Q3 2018. However, growth was far from uniform. Origination balances of consumption lending categories (personal loans and consumer durable loans) grew at 24.1% YoY, while those of asset finance products (auto loans, two-wheeler loans, LAP, home loans) declined by 8.4% YoY. The share of consumption products to total balances originated increased to 31.2% in Q3 2019, compared to 25.1% in Q3 2018.

“Our findings suggest the shift toward consumption lending categories is becoming more sustained and is supported by a strong demand for these products. Consumer inquiry volumes for personal loans and credit cards increased significantly over the period, whereas we saw inquiries were broadly unchanged or slightly down for loans against property and home loans.” said Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL. “This change in demand might, in part, be driven by consumer sentiment and wider macroeconomic pressures. Flattening demand for large-ticket asset purchases is causing slower asset finance loan originations, while consumers may be increasingly turning to consumption credit products to help finance day-to-day living expenses. This shift in consumer credit demand warrants ongoing monitoring to understand the impact on lender portfolios.”

Q3 2019 India Consumer Credit Market at a Glance – Consumption Lending Driving Growth

1. Serious delinquency rates are measured as the percentage of balances 90 or more days past due (DPD)
2. Vintage delinquency looked at all accounts originated in Q1 2018 and Q1 2019 and compared 30+ DPD delinquency rates of those new accounts 6 months later. Positive numbers indicate higher delinquencies for the more recent vintage, while negative numbers indicate lower delinquencies for the recent vintage.

Rural urban lending divide narrows

Growth in consumer lending is no longer concentrated in metro locations. Lenders have increased credit penetration to less densely populated geographies as part of their expansion strategies. Consumers in semi-urban and rural areas have also shown increased willingness to seek loans from formal lending institutions.

Total balances from rural and semi-urban locations increased by 17.4% YoY in Q3 2019, whilst those in metro and urban areas increased by 11.4% YoY, albeit from a higher level. The higher growth in balances from rural and semi-urban locations is seen across product types, indicating a greater focus by lenders on geographical diversity.

The growth in lending in rural and semi-urban areas is led by both strong consumer demand and solid lender supply. Loan inquiry volumes in rural and semi-urban locations increased by 45.7% YoY, while origination volumes increased by 41.0% YoY. This compares to a 32.4% YoY growth in inquiry volumes and 27.3% YoY growth in origination volumes for metro and urban areas.

Delinquencies

Overall balance-level serious delinquencies showed a relatively small increase of 10 basis points (bps) YoY in Q3 2019. As with other measures, the increase in delinquency rates was not uniform and was most pronounced for LAP (up 52 bps), home loans (up 13 bps) and credit cards (up 10 bps). Overall delinquencies actually improved for auto loans (down 22 bps) and personal loans (down 5 bps).

However, it can happen that high origination growth can mask portfolio-level delinquencies. To address this concern, TransUnion carried out a static pool analysis – also known as vintage analysis. Vintage analysis looked at all accounts originated in Q1 2018 and Q1 2019 and compared 30+ DPD delinquency rates of those new accounts 6 months later. Positive numbers indicate higher delinquencies for the more recent vintage, while negative numbers indicate lower delinquencies for the recent vintage. This analysis of more recent loan originations (accounts originated in Q1 2019) did show more encouraging signs for the home loan and LAP categories, with improvements of 312 bps and 205 bps, respectively, indicating better credit selection. Credit cards and personal loans also showed an improvement of 78 bps and 55 bps respectively. However, the same vintage analysis for auto loans did show an increase of 151 bps in delinquencies.

For personal loans and auto loans, there has been a marked increase in originations for consumers in the below-prime* risk segment. Almost 30.5% of auto loan originations and 34.7% of personal loan originations in Q3 2019 were to borrowers considered below-prime – representing increases of 3.5% and 8.3%, respectively, over Q3 2018. Accordingly, auto loan has experienced sharper increases in vintage delinquencies.

Overall delinquency rates have increased by 51 bps YoY in Q3 2019 for NBFCs, which continue to show signs of stress. At the same time, delinquency rates for public sector (PSU) and private sector (PVT) banks have declined by 26 bps and 9 bps, respectively YoY.

“The availability of consumer credit can be an important catalyst for continued economic growth, and it is clear there is still an appetite in the market to support this goal. While overall credit selection shows an improvement in recent quarters, there is increased intake risk seen in auto loan acquisitions. As lenders relax their underwriting strategies, it is important that they continue to assess the impact of these changes on risk and actively monitor their portfolios,” concluded Kelkar.

*TransUnion CIBIL Credit Vision (CV) score tiers: subprime = 300-680, near prime = 681-730, prime = 731-770, prime plus = 771-790, and super prime = 791-900. Higher scores are indicative of lower risk. Grouped together, below prime segments constitute a CV score of ≤730 and prime or above a CV score of ≥731.

Mumbai, January XX, 2020 – Continued consumer credit growth, concentrated in consumption lending categories including credit cards and personal loans, is the headline finding of the newly-released TransUnion CIBIL CY Q3 2019 Industry Insights Report. During the period, growth in the wider market continued to cool and overall delinquency rates showed a marginal increase, with large variances in performance across product types.

The third quarter results show the continued development of trends seen in the first half of the year, as lenders and consumers continue to adjust to moderating macro-economic conditions.

In Q3 2019, overall balances across all major consumer lending products increased by 13.1% year-on-year (YoY), compared to 23.2% YoY growth the prior year in Q3 2018. Although still strong, this is now the sixth consecutive quarter where growth in credit balances has decelerated. This growth is not uniform across all of the major consumer lending categories. The consumption lending categories of credit cards and personal loans recorded growth rates of 40.7% and 28.0%, respectively, YoY in Q3 2019, whereas auto loans, loans against property (LAP) and home loans recorded comparatively more moderate rates of balance growth at 10.3%, 11.6% and 10.0%, respectively.

Similarly, overall origination volumes grew 32.1% YoY in Q3 2019, but this average belies a much more diverse story across categories as much of the overall growth was driven by a single category. Personal loan new account origination volumes recorded dramatic YoY growth of 133.9% in Q3 2019 as consumer demand for this credit product continued to accelerate. Non-banking financial companies (NBFCs), which have grown their share of personal loan originations in recent years, continue to focus on acquiring smaller value personal loans. The average ticket size (ATS) of NBFC personal loans dropped YoY to INR 37 thousand in Q3 2019 from INR 94 thousand in Q3 2018. Looking at originations growth of other products, credit card origination volumes grew a healthy 20.9% YoY in Q3 2019, while LAP origination volumes grew marginally by 1.2% YoY in Q3 2019. Meanwhile, home loans (-12.9%) and auto loans (-1.0%) saw YoY declines in originations.

Growth in overall origination balances of installment credit products remained broadly flat in Q3 2019, compared to an increase of 15.1% in Q3 2018. However, growth was far from uniform. Origination balances of consumption lending categories (personal loans and consumer durable loans) grew at 24.1% YoY, while those of asset finance products (auto loans, two-wheeler loans, LAP, home loans) declined by 8.4% YoY. The share of consumption products to total balances originated increased to 31.2% in Q3 2019, compared to 25.1% in Q3 2018.

“Our findings suggest the shift toward consumption lending categories is becoming more sustained and is supported by a strong demand for these products. Consumer inquiry volumes for personal loans and credit cards increased significantly over the period, whereas we saw inquiries were broadly unchanged or slightly down for loans against property and home loans.” said Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL. “This change in demand might, in part, be driven by consumer sentiment and wider macroeconomic pressures. Flattening demand for large-ticket asset purchases is causing slower asset finance loan originations, while consumers may be increasingly turning to consumption credit products to help finance day-to-day living expenses. This shift in consumer credit demand warrants ongoing monitoring to understand the impact on lender portfolios.”

Q3 2019 India Consumer Credit Market at a Glance – Consumption Lending Driving Growth

1. Serious delinquency rates are measured as the percentage of balances 90 or more days past due (DPD)
2. Vintage delinquency looked at all accounts originated in Q1 2018 and Q1 2019 and compared 30+ DPD delinquency rates of those new accounts 6 months later. Positive numbers indicate higher delinquencies for the more recent vintage, while negative numbers indicate lower delinquencies for the recent vintage.

Rural urban lending divide narrows

Growth in consumer lending is no longer concentrated in metro locations. Lenders have increased credit penetration to less densely populated geographies as part of their expansion strategies. Consumers in semi-urban and rural areas have also shown increased willingness to seek loans from formal lending institutions.

Total balances from rural and semi-urban locations increased by 17.4% YoY in Q3 2019, whilst those in metro and urban areas increased by 11.4% YoY, albeit from a higher level. The higher growth in balances from rural and semi-urban locations is seen across product types, indicating a greater focus by lenders on geographical diversity.

The growth in lending in rural and semi-urban areas is led by both strong consumer demand and solid lender supply. Loan inquiry volumes in rural and semi-urban locations increased by 45.7% YoY, while origination volumes increased by 41.0% YoY. This compares to a 32.4% YoY growth in inquiry volumes and 27.3% YoY growth in origination volumes for metro and urban areas.

Delinquencies

Overall balance-level serious delinquencies showed a relatively small increase of 10 basis points (bps) YoY in Q3 2019. As with other measures, the increase in delinquency rates was not uniform and was most pronounced for LAP (up 52 bps), home loans (up 13 bps) and credit cards (up 10 bps). Overall delinquencies actually improved for auto loans (down 22 bps) and personal loans (down 5 bps).

However, it can happen that high origination growth can mask portfolio-level delinquencies. To address this concern, TransUnion carried out a static pool analysis – also known as vintage analysis. Vintage analysis looked at all accounts originated in Q1 2018 and Q1 2019 and compared 30+ DPD delinquency rates of those new accounts 6 months later. Positive numbers indicate higher delinquencies for the more recent vintage, while negative numbers indicate lower delinquencies for the recent vintage. This analysis of more recent loan originations (accounts originated in Q1 2019) did show more encouraging signs for the home loan and LAP categories, with improvements of 312 bps and 205 bps, respectively, indicating better credit selection. Credit cards and personal loans also showed an improvement of 78 bps and 55 bps respectively. However, the same vintage analysis for auto loans did show an increase of 151 bps in delinquencies.

For personal loans and auto loans, there has been a marked increase in originations for consumers in the below-prime* risk segment. Almost 30.5% of auto loan originations and 34.7% of personal loan originations in Q3 2019 were to borrowers considered below-prime – representing increases of 3.5% and 8.3%, respectively, over Q3 2018. Accordingly, auto loan has experienced sharper increases in vintage delinquencies.

Overall delinquency rates have increased by 51 bps YoY in Q3 2019 for NBFCs, which continue to show signs of stress. At the same time, delinquency rates for public sector (PSU) and private sector (PVT) banks have declined by 26 bps and 9 bps, respectively YoY.

“The availability of consumer credit can be an important catalyst for continued economic growth, and it is clear there is still an appetite in the market to support this goal. While overall credit selection shows an improvement in recent quarters, there is increased intake risk seen in auto loan acquisitions. As lenders relax their underwriting strategies, it is important that they continue to assess the impact of these changes on risk and actively monitor their portfolios,” concluded Kelkar.

*TransUnion CIBIL Credit Vision (CV) score tiers: subprime = 300-680, near prime = 681-730, prime = 731-770, prime plus = 771-790, and super prime = 791-900. Higher scores are indicative of lower risk. Grouped together, below prime segments constitute a CV score of ≤730 and prime or above a CV score of ≥731.