Synopsis:
- During the fiscal years 2017 to 2023, personal loan credit experienced robust growth of almost 1.5 times the overall credit growth observed in both Banks and Non-Banking Financial Companies (NBFCs). Within personal credit (which typically signifies consumption loans), unsecured personal loans outpaced the overall expansion of the personal loan book and constitute nearly one-third of the total personal loan segment loans. This trend has been further facilitated by the advent of Fintech and Digital channels, contributing to increased origination volumes. The emphasis on smaller ticket-size loans by NBFCs has been a significant driver of volume growth in the unsecured personal loan segment.
- High growth in unsecured personal loans is driven by a multitude of factors with some of these factors being structural in nature, and hence, going forward, a relatively higher growth rate is likely to continue. However, the recent RBI notification, aimed at deterring high consumer credit growth, is expected to impact the momentum in growth in the immediate to near term.
- Although the asset quality has remained stable, there is a need for vigilant monitoring, particularly on small ticket size loans; furthermore, given that each player focuses on specific sub-segments, this may lead to divergent credit cost trends in the unsecured retail portfolio of these players.
