Retail credit cools as demand slumps

MUMBAI: Retail credit growth in India slowed in Q2FY25, with affordable housing and low-cost two-wheeler loans recording the steepest decline. According to the TransUnion Cibil credit market indicator report for the Sept quarter, loans disbursed for affordable housing (up to Rs 35 lakh) fell 12% year-on-year, while loans for houses between Rs 35 lakh and Rs 1 crore dropped by 4%. Low-cost two-wheeler loans (under Rs 75,000) dropped 10%.

In contrast, higher-value loans, such as home loans above Rs 1 crore and two-wheeler loans above Rs 1.5 lakh, grew 19% and 11%, respectively, reflecting a tilt toward higher-income borrowers. The report noted a general cooling of retail credit due to slowing demand and tighter supply across most loan products. Credit demand, while positive, hit a two-year low, and supply shrank in most segments except personal loans and credit cards.

Personal loans and credit cards bucked the broader decline. Personal loan origination volumes rose 11% year-on-year, though slower than the 32% growth seen in the same period last year. Credit card usage surged, with outstanding portfolio balances increasing 34% year-on-year in Sept 2024, compared to 26% in Sept 2023. This trend indicates a growing reliance on credit cards for consumer spending amid subdued growth in new loans for personal and consumer durable purchases since March 2024.

Portfolio balance growth showed mixed results across products. Home loan balances grew 14%, down from 16% a year ago, while loans against property increased by 22%, compared to 28% previously. Auto loans saw balances grow 20%, down from 25%, and two-wheeler loans grew 29%, a sharp drop from 38%. Delinquencies presented a varied picture. Secured products like home loans, loans against property, and auto loans saw improvement in delinquency rates. However, delinquencies rose for consumption-driven loans, including credit cards and personal loans. Credit card delinquencies increased by 31 basis points YoY, while personal loan delinquencies rose by 14 basis points.

With global economic uncertainties and slowing urban consumption, lenders are exercising caution.