Rama Krishna Sangem
People in our country are taking more personal loans than they deposit money in banks. This seems because of Covid era impact which pushed them into debt trap and hit their incomes, according to a study from prominent rating agency CreditEdge.
Personal loans have been the biggest drivers for India’s banking sector as corporate lending has stalled due to rising non-performing assets and deleveraging in fiscal year 2023. Despite consecutive repo rate hikes, borrowings increased by 15 per cent year on year till March 2023, the longest annual jump in credit offtake in the last eleven years.
Rating agency CareEdge expects credit offtake to outpace deposit growth in fiscal year 2024 due to the economic expansion, rise in capital expenditure, implementation of the PLI scheme, and retail credit push. CareEdge estimates the credit growth to be in the range of 13%-13.5% and deposit growth to be in the range of 10-10.5% during FY24.
The Personal loan segment is expected to continue doing well compared with the industry and service segments. However, it has cautioned that slowdown in global growth due to rising interest rates, and rate hikes in India could impact credit growth.
The personal loan segment (largest segment with a 32.1 per cent share) witnessed a robust growth of 20.6 per cent y-o-y in March 2023 due to strong growth in unsecured loans, vehicle, and home loans, said Care Edge Rating.
NBFCs see more business
“Direct Assignment transactions (sale of loan books) by non-banking financial corporations of over Rs 1.7 trillion along with co- lending and direct lending have contributed to the growth of which around 80 per cent was taken up by banks. This has resulted in the personal loans segment increasing its share and that is likely to continue to grow further given the focus on the segment,” said Sanjay Agarwal, Director at Care Ratings.
Housing loans (share of 47.4 per cent within personal loans) grew 15 per cent y-o-y in March 2023 compared with 12 percent in the year-ago period. Despite reporting healthy growth, the share of housing loans dropped to 47.4% in the personal loans segment as of March 24, 2023, vs. 49.7% over a year ago period.
Unsecured loans grew at a faster pace. They reported a growth of 26.4 per cent y-o-y in March 2023 due to the miniaturization of credit, digitalization of loans (faster loan turnaround and easier process), and preferences for premium consumer products, noted the report. Its share increased to 32.6 per cent in the personal loans segment as of March 24, 2023, vs. 31.1% over a year ago.
Vehicle loans (a share of 12.3 per cent within personal loans) grew 24.9 per cent y-o-y in March 2023 as compared to 9.3 per cent in the year-ago period. In FY23, passenger vehicles grew 27 per cent, commercial vehicles by 34 per cent, tractors by 12 per cent, and 3-wheelers by 87 per cent on a y-o-y basis.
The growth in sales volume across segments was supported by healthy demand in the urban areas, increasing replacement demand, growing demand for utility vehicles in the passenger vehicle segment, vehicle scrappage policy, and higher infrastructure spending.
