Demand for consumer lending, which was hit hard by the COVID-19 pandemic, seems to be recovering as the country unlocks and the economy rebounds from the lows hit in the April-June quarter.
While retail credit growth has still yet to reach last year’s level, there has been consistent growth month-on-month. Retail credit demand as measured by inquiry volumes plunged 72 per cent year-on-year in April, but has continued to recover since and was down only 7.3 per cent in November, data from TransUnion Cibil showed.
“Demand for retail credit products has steadily increased in recent months following the initial shock from the COVID-19 pandemic earlier this year. In November 2020, retail credit demand (as measured by inquiry volumes) was back to almost 93 per cent of the levels observed in November 2019, and was significantly up from the low levels observed during the early months of the pandemic,” the credit information company said.
While public sector banks saw the biggest rebound in inquiries in the unlock phase as they were early in recommencing operations than their peers, November was the first time that the private banks saw positive year-on-year growth in inquiry volumes since February, TransUnion Cibil said.
While non-banking finance companies have also seen a rebound in loan inquiries, their pickup has been the slowest among all the lender categories, it added.
Even as overall there seems to be a rebound in retail credit inquiries, there is still a huge variance within various categories. For instance, home loan inquiries were up 9.1 per cent last month, but personal loan inquiries were still 43.1 per cent lower.
Interest rates on mortgages have fallen significantly in the last few months, as the Reserve Bank of India slashed its benchmark Repo rate to just 4 per cent as a part of its measure to boost growth. That, apart from pent up demand and attractive offers by developers, has driven the pickup in home loans.
“There has been an increasing focus on homeownership by individuals. The bargaining power of home buyers has increased post-COVID-19 and homes are now available at attractive prices. Consumers who otherwise wanted to buy a home and whose financial situation has not deteriorated are seeking this opportunity to buy homes,” said TransUnion Cibil.
When it comes to personal loans, the growth before the pandemic struck was largely driven by fintechs and NBFCs; the latter in particular are now reluctant to lend to high-risk borrowers, said TransUnion Cibil.
Auto loan inquiries also increased by 5.2 per cent in November, after plunging 64.6 per cent in May, helped by new launches and as personal mobility gains traction due to COVID.
“The pandemic has brought about marked changes in consumer habits and behaviour. Consumers have shifted away from shared mobility options as they prioritise social distancing and personal hygiene. This has led to better resumption in auto loan inquiry volumes. Further, festive season offers and the excitement created by new launches have contributed to the accelerated revival of auto loan market,” noted TransUnion Cibil.
On the other hand, while credit card inquiries have picked since the 76.2 per cent slump in May, they were still down 8.5 per cent in November. Similarly, inquiry volumes for loan against property (LAP) were 7.6 per cent lower last month.
Interestingly, data shows that credit card popularity in traditionally cash-driven, non-metro locations has risen with more consumers seeking this product. Credit card inquiries in non-metro markets last month rose 3 per cent but declined 19.1 per cent from a year ago from metro locations.
