Unsecured loans driving consumer credit

It can be noted that over the last year, a crisis at NBFCs has hit the credit market as the liquidity conditions became difficult. The sluggish economic growth ensured corporates stay away from borrowings, forcing banks to focus on the consumer segment.

Mumbai: Reliance on unsecured lending for consumption purposes has grown due to the tighter credit market, which raises "concerns" for the future, a credit information company said on Wednesday.

Even though loan defaults in the consumer segments are stable, there is build-up of stress in non-bank finance companies (NBFC) portfolios, Transunion Cibil said.

It can be noted that over the last year, a crisis at NBFCs has hit the credit market as the liquidity conditions became difficult. The sluggish economic growth ensured corporates stay away from borrowings, forcing banks to focus on the consumer segment.

However, as the growth slowdown gets prolonged, consumer confidence is dented and there is a dip in consumption as well which has taken economic growth to six year lows.

Consumer credit portfolio growth slowed down to 17.1 per cent for the June quarter of this year, as against the 23.5 per cent growth in the same period last year, the CIC said in a report.

In what should raise eyebrows, both credit cards and personal loans, which form the riskier unsecured lending books grew at a faster clip of 34.3 per cent and 35 per cent, respectively.

"Reliance on unsecured credit raises concerns," the company said in a statement.

"The NBFC liquidity crisis is becoming a serious concern, as it could have negative ramifications on wider economic activity," its vice president Abhay Kelkar said.

Except for loans against property products, which are used by promoters/owners of smaller enterprises, portfolio delinquency rates for most consumer credit products declined as compared to last year, it said.

"However, it can happen that high origination growth can mask portfolio-level delinquencies," it explained.

Even though overall consumer credit delinquencies have remained largely stable through this slowdown, our data indicate that there are some stress build-ups in NBFCs, Kelkar said.