Consumer loans growing but some vintage loans indicate higher risk: CIBIL


MUMBAI: Consumer credit growth continued to grow but at a slower pace than a year ago in the quarter ended June 2019, however some loan accounts which are older than a year are showing signs of stress with a spike in delinquencies, credit bureau TransUnion CIBIL said.

Credit balances for consumer loan products grew 17.1% year-on-year (y-o-y) in the quarter ended June 2019 compared to 23.5% a year earlier led by a more than 30% rise in credit cards and personal loans even as auto loans, home loans and loan against property (LAP) declined.

LAP declined by a sharp 21% year-on-year mainly because of a slowdown in growth from public sector banks and NBFCs even as delinquencies in these loans increased by 25 basis points y-o-y as the percentage of loans 90 or more days due increased to 3.47%. One basis point is 0.01 percentage point. Among the lenders NBFCs recorded the largest increase in LAP delinquencies at 49 basis points followed by public sector banks at 29 basis points and private sector banks at 27 basis points. These delinquency increases primarily occurred in loans larger than Rs 1 crore.

Personal loans and auto loans reported a spike in vintage delinquencies which looks at loans due for more than 90 days and are active for at least 12 months. Looking at vintage delinquencies allows credit bureaus to look beyond short term spikes in loan balances which can dilute default percentages. Delinquencies for both personal as well as auto loans spiked 25 basis points and 90 basis points respectively when seen from this perspective, largely coming from NBFCs.

“While overall delinquency rates have generally remained stable, there are indications of higher risks in the market that lenders must understand, and adjust their strategies to address effectively. In today’s challenging market, it is critical that lenders conduct increasingly sophisticated analyses, such as vintage analysis, to better understand the underlying health of their portfolios,” said Abhay Kelkar, vice president of research and consulting for TransUnion CIBIL.

TransUnion Cibil is India’s oldest credit bureau. It’s quarterly report provides insights on the Indian consumer lending which originates its database of more than 600 million files. The report analyzes all accounts reported to TransUnion CIBIL that have been verified in the past 10 years.

The credit bureau also saw a shift in credit card originations to higher-risk tiers in the second quarter though it has not immediately resulted in higher delinquencies. In the June quarter, 32.1% of card originations were to consumers in below-prime risk tiers (subprime and near prime), compared to 26.4% in Q2 2018.

TransUnion CIBIL defines high risk borrowers as ones which have credit scores of less than 700. The company classifies in five bands, subprime (300-650), near prime (651-700), prime (701-750), prime plus (751-800), and super prime (801-900). Higher scores are indicative of lower risk.

“Credit card and personal loan balances in below-prime and mid-risk tiers had higher growth rates than the market overall,” said Kelkar. “This indicates a greater willingness among lenders to relax their underwriting standards and extend more unsecured credit to higher-risk borrowers. This approach can certainly lead to growth, as we have seen, but it requires consistent and effective risk management strategies to be managed properly on an ongoing basis.”