In a comprehensive analysis of India’s lending landscape, the Reserve Bank of India (RBI) revealed that a staggering 92% of the country’s outstanding loans are clustered within housing, personal, auto, and credit card debts. This revelation, extracted from the 2023 RBI sectoral credit growth data within the BankBazaar Moneymood Report’s sixth edition, sheds light on the nation’s credit trends in the year gone by and anticipations for 2024.
Year 2023: A Snapshot of Credit Growth
Retail lending surged by an impressive 18% year-on-year (YoY) despite grappling with high-interest rates and soaring inflation. Unsecured lending, marked by loans not backed by collateral, notably sustained substantial growth. Notably, personal loans and credit card spending escalated by 22% and 28% respectively, illuminating the persistent demand for credit in the face of economic challenges.
Impact of RBI’s Risk Weight Alterations
An important development in 2023 was the RBI’s intervention to curb excessive lending in riskier segments. The apex bank augmented risk weights on various loan categories such as credit cards, personal loans, consumer durable loans, and loans to non-banking financiers. This strategic maneuver aimed to compel banks and non-banking financial companies (NBFCs) to maintain heightened capital reserves for these high-risk categories.
Loan Composition Insights
The top four loan categories—housing, auto, personal, and credit card debts—commanded a formidable 92% of the total debt. Despite housing loans representing 47% of the retail credit pie and registering a 14.5% YoY growth, the share of home and auto loans witnessed a slight decline while personal loans and credit card dues swelled by 137 basis points.
Predictions for 2024
Adhil Shetty, Chief Executive Officer of BankBazaar.com, highlighted expectations for 2024, expressing optimism about potential inflation easing, which could consequently reduce interest rates. However, the increased risk weights, especially for high-risk and small-ticket loans, are anticipated to deter lending to riskier segments while favoring prime borrowers.
Loan-Specific Insights
- Home Loans: While home loan demand persisted, growth decelerated compared to the previous year. Average ticket sizes continued to rise, reflecting a slower yet persistent trajectory in the sector.
- Personal Loans: Despite a 22% YoY growth, the average ticket size witnessed a decline. The recent elevation in risk weights has made personal loans more expensive and stringent to obtain.
- Credit Cards: The number of credit cards outstanding crossed a significant 94.7 million in October 2023, coinciding with a surge in spends. However, it remains to be seen how increased risk weights will impact the credit card segment in 2024.
Future of Unsecured Loans
As the unsecured loan landscape adapts to the RBI’s altered regulations, Shetty anticipates a shift. Strongly capitalized lenders are poised for success, while those facing stress may encounter hurdles in navigating this evolving lending terrain.
The 2023 RBI data underscores the intricate dynamics of India’s lending ecosystem, signaling potential shifts and challenges in the coming year.
