The growth of retail credit in India has slowed down across many types of loans, according to TransUnion CIBIL. This means that people are taking fewer loans, and banks and financial institutions are being more careful in giving out credit. Retail credit includes different types of loans that people take for personal use, like home loans, personal loans, car loans, and credit card loans. Over the past year, there has been a clear decrease in the rate at which new loans are being given out. This slowdown is not limited to one type of loan but is visible across almost all loan categories. TransUnion CIBIL’s CEO, Rajesh Kumar, has said that even though the slowdown is noticeable, the overall financial situation remains stable. The data from the latest report shows that lenders are becoming more cautious about providing loans, which has led to a reduction in the number of new loans being issued. This trend reflects changing economic conditions and the approach that financial institutions are taking to reduce risks.
In the quarter ending in September 2023, the growth in the number of new loans given out has dropped compared to the same period in 2022. For example, home loans, which are one of the largest categories of loans, have shown no increase in the number of loans issued. In the period from July to September 2022, home loans had grown by 13%, but in the same period in 2023, the growth rate was 0%. This means that the number of new home loans given out did not increase at all. However, the value of these loans increased by 9%, which suggests that the price of homes has gone up even though the number of people taking home loans has not increased. A major reason for this is that low-value home loans, which are loans under ₹35 lakh, have fallen by 4%. Since these low-value home loans make up 76% of all home loans, this decline has affected the overall growth of the home loan sector. On the other hand, high-value home loans, which are loans above ₹75 lakh, have increased by 23% in terms of value. This indicates that people buying expensive homes are still taking loans, but those buying lower-priced homes are finding it harder to get loans or may be holding back from borrowing.
Loans against property, which are loans where people use their property as security to get a loan, have also shown a significant slowdown. In the quarter from July to September 2022, loans against property had grown by 32%. However, in the same period in 2023, the growth rate dropped to 14%. This is a clear sign that fewer people are willing to take loans against their property or that lenders are being more careful in giving out such loans. When people take loans against property, they often use them for business purposes or for large personal expenses. A decline in this type of loan could mean that both businesses and individuals are becoming more cautious about taking on new debt. The reduction in loans against property might also suggest that property values are stabilizing or that banks are tightening their rules about lending against property to reduce the chances of unpaid loans.
Auto loans, which are loans that people take to buy cars, have also shown a decline in growth. In the July to September 2022 period, auto loan growth was 13%, but in the same period in 2023, the growth rate fell to 6%. This means that fewer people are taking loans to buy cars. There could be several reasons for this slowdown. One reason might be that the cost of cars has increased due to higher production costs and inflation. Another reason could be that higher interest rates are making it more expensive for people to borrow money to buy cars. When interest rates go up, the monthly payments for auto loans increase, which can discourage people from buying new cars. The decline in auto loans reflects a cautious approach by both lenders and borrowers. People may be delaying their decision to buy cars because of financial uncertainty or higher borrowing costs.
Two-wheeler loans, which are loans used to buy motorcycles and scooters, have also slowed down but not as much as other types of loans. In the July to September 2022 period, two-wheeler loan growth was 20%, but in the same period in 2023, the growth rate dropped to 16%. While this is a decline, it is not as sharp as the drop seen in other loan categories. This suggests that demand for two-wheelers remains relatively strong. However, the fact that growth has slowed down indicates that people may be feeling the effects of higher costs and higher interest rates even for smaller purchases like two-wheelers. The slowdown in two-wheeler loan growth could also be due to changing consumer preferences or economic conditions that make people cautious about taking on even small debts.
Personal loans, which are loans that people take for personal expenses such as medical bills, weddings, or travel, have shown a major decline in growth. In the July to September 2022 period, personal loan growth was very high at 72%. However, in the same period in 2023, the growth rate fell sharply to 28%. This is a significant drop, which suggests that fewer people are taking personal loans, or lenders are being more selective about whom they lend to. Personal loans are usually unsecured, which means they are not backed by any asset. Because of this, they carry a higher risk for lenders. A sharp slowdown in personal loan growth could mean that lenders are tightening their requirements or that borrowers are finding it difficult to qualify for loans under the current financial conditions. It could also mean that people are becoming more cautious about taking on debt for non-essential expenses.
Credit card loans, which refer to the money that people borrow through their credit cards, have also shown a major slowdown. In the July to September 2022 period, credit card loan growth was very high at 74%, but in the same period in 2023, the growth rate fell sharply to just 5%. This suggests that people are using their credit cards less, or they are paying off their balances more quickly. It could also mean that banks and financial institutions are being more careful about increasing credit limits or issuing new credit cards. A decline in credit card loan growth might reflect a more cautious approach by consumers, who may be worried about increasing debt levels or rising interest rates on credit card balances. Since credit card interest rates are usually very high, even a small increase in the rate can make it expensive for people to carry a balance on their cards.
Consumer durable loans, which are loans used to buy items like refrigerators, televisions, and washing machines, have shown the most dramatic slowdown. In the July to September 2022 period, consumer durable loan growth was 39%, but in the same period in 2023, the growth rate fell sharply to just 2%. This means that very few new loans are being taken to buy consumer goods. This could mean that people are cutting back on non-essential spending due to higher living costs and economic uncertainty. It could also mean that banks and financial institutions are being more cautious about giving out loans for consumer goods. The slowdown in consumer durable loans indicates that both lenders and borrowers are adjusting their behavior in response to changing financial conditions.
The share of new-to-credit (NTC) consumers, which refers to people who are taking a loan for the first time, has also declined. In the quarter ending September 2022, the share of NTC consumers in total loan originations was 17%. In the same period in 2023, this share dropped to 14%. This means that fewer new borrowers are entering the credit market. A decline in new borrowers could mean that younger consumers or people with limited credit histories are finding it harder to get loans. It could also mean that financial institutions are becoming more selective about whom they lend to. The decline in new-to-credit borrowers reflects a tightening of lending standards, which could limit access to credit for people who are trying to build their credit history.
Despite the slowdown in loan growth, the overall credit performance has remained stable. Credit performance refers to how well borrowers are repaying their loans. Serious delinquencies, which refer to payments that are more than 90 days overdue, have improved for most loan categories. This suggests that even though fewer new loans are being given out, people are managing their existing debts better. However, there has been a slight increase in delinquencies for personal loans and credit card loans. This could be a sign that some borrowers are struggling to keep up with their payments due to higher interest rates and increased financial pressure.
TransUnion CIBIL’s CEO, Rajesh Kumar, has said that the current slowdown reflects a balanced and cautious approach to lending. He mentioned that the stable credit performance provides a strong foundation for future growth. Kumar emphasized the importance of careful monitoring of loan portfolios and extending credit to lower-risk consumers. This means that banks and financial institutions are focusing on lending to people with a good credit history to reduce the chances of unpaid loans. He believes that this approach will help create sustainable and balanced growth in India’s credit market in the future.
Another important factor influencing the slowdown in retail credit growth is the changing behavior of consumers. Over the past few years, there has been a shift in how people view debt and spending. With rising interest rates and increasing costs of living, many consumers are now more cautious about taking on new debt. High inflation rates have made essential goods and services more expensive, forcing people to prioritize their spending. When people are under financial pressure, they tend to reduce non-essential expenses and focus on paying off existing debts instead of borrowing more money. This shift in consumer behavior directly affects the demand for new loans, especially for products like personal loans, credit cards, and consumer durable loans. Financial institutions have also noticed this change and are adjusting their lending strategies to account for the lower demand and increased caution among borrowers.
The cautious approach taken by financial institutions is also reflected in their stricter credit approval processes. Banks and lenders have tightened their rules for approving loans to reduce the risk of defaults. This means that consumers now need higher credit scores, stable income, and better financial profiles to qualify for loans. Lenders are also conducting more detailed background checks and assessing the repayment capacity of borrowers more carefully before issuing new loans. This cautious approach helps lenders reduce their exposure to risk, but it also means that fewer people are able to qualify for loans. The tightening of credit approval standards is one of the main reasons why the overall loan growth rate has declined, even though the economic situation remains stable. This strategy helps lenders maintain a healthy loan portfolio and avoid financial instability caused by rising defaults.
Another reason for the slowdown in retail credit growth is the increase in interest rates by the Reserve Bank of India (RBI). Over the past year, the RBI has raised interest rates multiple times to control inflation. When interest rates go up, the cost of borrowing increases. Higher interest rates mean that monthly loan payments become more expensive for borrowers, which discourages people from taking new loans. For example, a higher home loan interest rate can significantly increase the total cost of a property over the loan’s lifetime, making people think twice before buying a house. Similarly, higher rates for personal loans and auto loans make it more expensive for people to finance big purchases, leading to a decline in loan demand. This increase in borrowing costs has had a direct impact on loan growth, especially for large loan categories like home loans and auto loans.
The competitive landscape in the lending market has also contributed to the slowdown in credit growth. In recent years, the rise of fintech companies and digital lending platforms has changed the way people access credit. These new players have introduced innovative loan products and flexible repayment options, which have attracted many borrowers. However, traditional banks and financial institutions have responded to this competition by tightening their credit policies to avoid excessive risk. The increased competition has forced lenders to be more selective about whom they lend to, which has resulted in slower overall loan growth. Some fintech companies have also faced regulatory challenges and funding constraints, which have limited their ability to expand aggressively in the lending market. The combined effect of increased competition and tighter regulations has created a more cautious and balanced lending environment.
Consumer sentiment and confidence in the economy also play a key role in influencing credit demand. When people feel uncertain about their financial future or the state of the economy, they tend to avoid taking on new debt. Over the past year, concerns about global economic instability, geopolitical tensions, and domestic inflation have made people more cautious about their spending and borrowing habits. Even though India’s overall economic growth remains strong, the uncertainty in the global market has made many consumers hesitant to commit to long-term financial obligations. For example, buying a house or a car requires confidence in future income stability, and when people feel uncertain about their jobs or business prospects, they are less likely to take big financial decisions. This cautious mindset has contributed to the slowdown in loan growth.
Changes in the job market and household income levels have also influenced retail credit trends. While India has seen economic recovery after the pandemic, not all sectors have experienced equal growth. Some industries have recovered quickly, while others have faced challenges due to supply chain issues, labor shortages, and rising costs. This uneven recovery has resulted in income uncertainty for some households, which affects their ability to take on new debt. People with unstable or fluctuating incomes are less likely to apply for loans because they are uncertain about their ability to repay them. Additionally, rising household expenses due to inflation have reduced the disposable income available for loan repayments. When people have less money left over after covering essential expenses, they are less likely to take on new financial commitments.
Technological advancements and the rise of digital platforms have also changed the dynamics of the credit market. Digital lending platforms have made it easier for people to apply for loans, but they have also increased the level of scrutiny in the approval process. Many digital lenders use advanced algorithms and artificial intelligence to evaluate credit risk, which allows them to identify potential defaulters more accurately. While this has improved the overall quality of loan portfolios, it has also resulted in a higher rejection rate for loan applications. Borrowers with low credit scores or irregular income patterns are often denied loans through these digital platforms, which reduces the overall volume of new loans. At the same time, digital lenders are focusing on attracting high-quality borrowers, which means that the availability of easy credit for low-risk borrowers has increased.
The role of government policies and regulatory changes cannot be overlooked when analyzing the slowdown in retail credit growth. In recent years, the Indian government and the RBI have introduced several measures to strengthen the financial sector and improve credit stability. For example, the RBI has introduced stricter guidelines for non-performing assets (NPAs), which require banks to maintain higher reserves for bad loans. This has encouraged lenders to be more cautious about approving loans, especially for high-risk borrowers. The government has also promoted financial inclusion through various schemes, but the focus has been on responsible lending rather than aggressive expansion. These policy changes have created a more stable and secure financial environment, but they have also contributed to slower credit growth because lenders are focusing more on credit quality than on the volume of new loans.
Another interesting trend is the shift in borrowing patterns among different age groups. Younger consumers, especially those in the 18 to 25 age group, have shown a preference for smaller, short-term loans through digital platforms rather than traditional bank loans. This shift reflects changing lifestyle habits and financial priorities among younger consumers. On the other hand, older borrowers, especially those in the 40 to 60 age group, continue to rely on traditional loans for big purchases like homes and cars. This difference in borrowing behavior means that lenders need to adopt different strategies for different customer segments. The growing reliance on digital platforms for small loans among younger consumers has also contributed to the slowdown in traditional loan growth, as more people are shifting toward alternative lending options.
Finally, the changing structure of the real estate market has influenced home loan growth. Over the past year, property prices in major cities have increased significantly, which has made housing less affordable for many middle-class buyers. Higher property prices, combined with rising interest rates, have made it difficult for many people to qualify for home loans. Builders and developers have also faced challenges in completing projects due to rising construction costs and supply chain disruptions. These factors have reduced the supply of affordable housing and made it harder for middle-income buyers to enter the housing market. The slowdown in home loan growth reflects these broader challenges in the real estate sector, which are likely to continue influencing credit demand in the coming years.
The slowdown in retail credit growth is a complex issue influenced by multiple economic, social, and financial factors. While the overall financial system remains stable, the cautious approach taken by both lenders and borrowers is reshaping the credit market. This period of slower growth could ultimately lead to a more balanced and sustainable credit environment, as financial institutions focus on credit quality and responsible lending practices. The evolving behavior of consumers, changes in government policy, and technological advancements will continue to shape the future of retail credit in India.