Demand for Retail Credit Rebounds, But Supply Declines, Shows Cibil Data

A report by credit bureau CIBIL suggests that fall in origination volume can be attributed to decline in both consumer demand as well as lender risk appetite as data shows that credit liquidity is not a challenge for lenders
Demand for Retail Credit Rebounds, But Supply Declines, Shows Cibil Data
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Demand for retail credit across segments has steadily rebounded from May when the inquiry volume declined by 72 per cent due to Covid-19 induced lockdowns across the country, shows data released by credit bureau TransUnion CIBIL.

Compared to last year in November, inquiry volume of retail credit products is down by only 7.3 per cent.

“In November 2020, retail credit demand (as measured by inquiry volumes) was back to 93 per cent of the levels observed in November 2019, and was significantly up from the low levels observed during the early months of the pandemic,” the report stated.


Source & Graphic: CIBIL 

“It is encouraging to see the renewed demand for credit, as that signals that consumer confidence and the willingness to borrow to fund larger-ticket purchases are on the rise,” said Abhay Kelkar, vice president - research and consulting, TransUnion CIBIL.

Among different lender categories, PSU banks recorded fastest rebound in inquiry volumes as they were early in kicking-off operations as lockdown restrictions started lifting. NBFCs have recorded the slowest rebound in inquiry volumes. The reason for this could be that NBFCs have historically catered to the relatively high risk consumers, who were the most impacted financially by Covid-19.


Source & Graphic: CIBIL 
 

Demand for Home and Auto Loans Rebound; Personal Loans Trail Behind

As lenders continue to be wary of high-risk borrowers amidst income uncertainty caused by Covid-19, demand for personal loans remain subdued, as per CIBIL’s report.

Personal loan inquiry volumes have dipped sharply by 43 per cent from last year “as risk appetite of lenders declined,” CIBIL’s Industry Insights Report stated. Non-banking financial companies (NBFCs), that cater the most to this loan category, recorded maximum decline with inquiries 69.7 per cent below from a year ago. Fintech companies or online lenders recorded a 10.2 per cent decline in inquiry volumes for the same time period.

Demand for credit card and loan against property (LAP) has also fallen compared to last year, down 8.5 per cent and 7.6 per cent, respectively.

In contrast to personal loans and credit cards, demand for home loan has improved considerably on the back of rock-bottom interest rates and attractive payment schemes offered by developers.

 

YoY Growth in Inquiry Volumes Nov 2020

Home Loan

9.1%

LAP

-7.6%

Auto Loan

5.2%

Personal Loan

-43.1%

Credit Card

-8.5%

 

Source: CIBIL 

 

Demand Up, but Supply Down

Despite uptick in demand for credit, supply of new credit has sharply fallen, as shown by the data for loan origination, which is measured by new account openings.

Till August this year, origination volume across key retail categories was down nearly 26.6 per cent from August last year. The report suggests that fall in origination volume can be attributed to decline in both consumer demand as well as lender risk appetite as data shows ample credit liquidity with lenders.

“When lockdown restrictions started to ease, there was a marked change in lender risk strategies, with some returning to the market far quicker than others,” said Kelkar. “Equally, lender appetite for risk has changed, with some providers moving away from extending new credit completely.”

Fall in approval rate also corroborates this trend with a decline across lender categories between August 2019 and August 2020, the report suggests. Approval rate of home loans was only 17.5 per cent of the total inquiries, while for credit cards and personal loans it was higher at 20.9 per cent and 31.6 per cent, respectively.


Source & Graphic: CIBIL 

“The impact of COVID-19 will continue to modify consumer and lender strategies and appetite for risk. The shape of the recovery in retail credit markets will be very much influenced by the ability to contain the spread of the pandemicand the successful deployment of vaccines at scale,” Kelkar said.

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