Mumbai | Kolkata: The pace of expansion in unsecured credit, such as personal loans and credit-card outstanding, has continued to slide in India after the central bank enhanced the risk weighting on such exposures to minimise the likelihood of mounting delinquencies in the banking system.
Unsecured loan growth slowed to about 18% in April, from 23% in November 2023, when the central bank made it less attractive for lenders to advance such credit, the latest data published by the Reserve Bank of India (RBI) showed.
Sequentially, personal and credit card loans expanded less than a percentage point in the month, while consumer durable loans shrank.
“Credit card loan growth declined as banks took a cautious stance due to increased delinquency in the industry,” said Anand Dama, senior research analyst at Emkay Global Financial Services. “Going forward, most banks expect the credit growth momentum to moderate a bit due to regulatory action on unsecured retail and NBFC loans, which otherwise had been a key growth contributor for some time.”
Consumption expenditure appears to have trailed the broader GDP expansion in the fourth quarter of FY24, suggesting the likelihood of tepid growth in consumption credit through FY25.
“Retail portfolio growth has declined led by moderation in credit card and other personal loans,” said Bunty Chawla, banking analyst at IDBI Capital. “Going forward, we need to monitor the impact of increased risk weight changes in personal loans, credit cards and NBFC on credit growth for FY25.”
In November last year, the banking regulator directed banks to set aside more capital as risk weights for loans disbursed toward unsecured personal loans, credit cards and lending to NBFCs. This was done to rein in the inordinate rise in such loans.
Net credit card addition, too, was circumspect, at 700,000 for April, while expenditures through the instruments also moderated.
Consumption Trails GDP
GDP data published recently showed that private consumption expanded by 4% in the fourth quarter, while government-led expenditure also slowed due to the general elections.
Some retailers and manufacturers of electronic products and durables said there has been a 4-5 percentage point shift from purchases through credit card and bank loans to finance provided by NBFCs since March.
“There has been an almost 50% increase in finance from NBFCs in the last two months as compared with the previous year, while credit card-led purchases have come down. NBFC financing is now 50-55% of sales while that through cards is 15-20%,” said Kailash Lakhyani, chairman of All India Mobile Retailers Association, which represents over 150,000 cell phone retailers across the country.
Industry executives said another reason for tepid growth in personal loans or credit card loans could be the slowdown in car sales growth lately.
The car sales growth rate has moderated since this calendar year, with companies attributing the trend to the high base effect of the previous year that witnessed revenge shopping after the Covid-induced shutdowns. In April, car sales rose 1.3% while ET had recently reported car registrations may fall by 5% in May.
However, sales of white goods surged in April-May, led by cooling appliances such as ACs, refrigerators and air coolers.
Godrej Appliances and retailer Vijay Sales said sales through financing options have been robust and that the mix of credit card sales in total revenue remains the same. “In fact, overall sales through financing options have gone up over last year April-May by 3%,” said Godrej Appliances business head Kamal Nandi.
