Home >Industry >Banking >Covid 2.0 dented consumer credit demand, says RBI

The pandemic’s second wave severely dented demand for consumer credit with a steep fall in inquiries across product categories in April, the Reserve Bank of India (RBI) said on Thursday.

Consumer credit includes home loans, loans against property, auto loans, two-wheeler loans, commercial vehicle loans, construction equipment loans, personal loans, credit cards, business loans, consumer durable loans, education loans and gold loans.

A credit inquiry is created when a borrower applies for a loan and permits the lender to scrutinize the credit record, and it is among the first credit market measures to show any change in credit data in response to shifts in economic activity.

The central bank also said that consumer credit portfolios of those other than public sector lenders are showing incipient signs of stress.

For instance, while consumer loan delinquency rate in state-run banks declined from 2.8% in September 2020 to 1.8% in January, it has increased by 100 basis points (bps) for private banks and 130 bps for non-bank financiers.

“The overall demand for consumer credit, as reflected in inquiry volumes, had stabilized in Q4 of FY21 after a sharp rebound during the festive season in Q3, after the first covid-19 wave receded," the RBI said in its financial stability report.

Loan approval rates, the banking regulator said, remain healthy as the risk tier composition of inquiries showed a distinct tilt towards better-rated customers.

A risk tier comparison is the segregation of risk brackets based on Cibil scores as: super prime (791-900), prime plus (771-790), prime (731-770), near-prime (681-730) and sub-prime (300-680).

However, the growth in credit-active consumers or those with at least one outstanding credit account and outstanding balances, however, remained sluggish.

“Consumer credit deteriorated after the loan moratorium programme came to an end in September 2020. Customer risk distribution of the credit-active population underwent a marginal shift towards the high-risk segment in January 2021 relative to January 2020," the RBI said.

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