Lenders Need To Innovate And Redesign Their Models, Says Report

Updated on: 15 June 2020 10:47 pm

Mumbai, June 15: The pandemic, followed by lockdowns, has created new challenges for lenders, forcing them re-consider and change their operating models, says a report by Information and insights provider, TransUnion CIBIL.

“Prior to COVID-19, India’s retail credit market was still growing at a much higher rate than most other credit markets around the world. However, this is a global crisis and no economy is immune. Despite the government launching one of the largest economic relief packages in the world, the social, financial and economic impact of COVID-19 will have far-reaching impact and will lead to a realignment of the retail credit market,” says Abhay Kelkar, Vice President - Research and Consulting, TransUnion CIBIL.

As per the report, the drop in consumer sentiment based on a significant hit on consumption demand and spending will have an effect on the future trajectory of the retail credit market.

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The TransUnion CIBIL report has analysed the relationship between macroeconomic variables and credit for key retail credit products. For doing so, the 2008/ 2009 global financial crisis was observed to predict certain behaviours for products like personal loans and credit cards. However, as per the report the fall in demand for these products in the current crisis period will not be as acute as it was during the previous crisis period.

“Unlike the last recession, we anticipate demand for products that provide the much-needed liquidity like credit cards and personal loans will remain moderate as consumers look to secure funds to bridge any personal finance gap. Their general availability and market penetration are much greater than they have been previously. The prevalence of FinTechs has also introduced new, more flexible product structures and greater access via digital channels,” says Kelkar.

Going forward, lenders would have to redesign their distribution networks and customer management frameworks. There’s a need for realignment of lending strategies based risk appetites and lenders need to implement analytics-driven risk to minimise the impact of emerging risks, believes Kelkar.