India’s retail credit market is expected to see changes owing to the covid-19 pandemic, with demand for secured loans dropping and lenders tightening borrower assessment norms, TransUnion Cibil said Thursday in a report.
The credit bureau said that its report draws on lessons learnt from the previous financial crisis to help map potential changes across the major retail credit categories. It analyzed the relationship between macroeconomic variables and credit data such as originations and inquiries for key retail credit products.
By observing the changes following the 2008-2009 global financial crisis, it is possible to predict certain behaviours, it said. The previous crisis lasted for around six consecutive quarters, and during that time both retail credit inquiry and origination volumes fell by almost 50% year-on-year (y-o-y).
Abhay Kelkar, vice president of research and consulting for TransUnion Cibil said in a statement that unlike the last recession, the bureau anticipates demand for products that provide much-needed liquidity like credit cards and personal loans will remain moderate.
“We expect that demand for secured lending products like auto loans and home loans will likely remain weak for some time," said Kelkar.
Moreover, while it expects a drop in approval rates for all major retail products due to lenders likely tightening their credit policy, a greater decline in approval rates is seen for personal loans and loans against property (LAP).
According to the report, LAP is typically seen as higher risk because it is popular amongst smaller business owners, and the irregular cashflow concerns presented by covid-19 will be a significant issue. Personal loans, which are unsecured in nature and had seen increased acquisition from high risk consumers prior to the pandemic, also represent an increased risk of default, it said.
TransUnion Cibil also said that the asset quality for unsecured lending products is likely to be impacted more severely owing to the covid-19 crisis.
The inability of some consumers to pay their debts post the moratorium period ending is likely to adversely impact their scores, and consequently the default probability may see a rise, it said.
That apart, the bureau expects that adherence to social distancing norms and limited field travel may impact overall lender collection efficiency, resulting in an increase in roll rates across various buckets.
Kelkar added that prior to the pandemic, India’s retail credit market was still growing at a much higher rate than most other credit markets around the world.
“However, this is a global crisis and no economy is immune," said Kelkar.