Unsecured Lending Product Inquiries Growing Fastest Pace: Report

In a sign of rapid expansion in unsecured loans, a credit information company on Tuesday said the three months ended May 2022 witnessed the highest growth in inquiries for such risky credit products.

Inquiry volumes for personal loans shot up by 141 per cent in the three months to May as compared to the year-ago period, while the same for credit cards grew 68 per cent, a report by Transunion Cibil said.

The report said this is a continuation of the trend observed for the January-March quarter as well, when the two unsecured segments had emerged as the ones with fastest growth rates on inquiries.

Typically, lenders charge higher interest to compensate for the higher risk from such unsecured products. They also adopt measures like restricting the exposures to customers having a credit history with them.

Loans unpaid for over 90 days saw a reduction across asset classes, showing an improvement in credit performance. But the rate of overdue balances was among the highest in credit card segment at 2.03 per cent as of March.

The ratio of loans going sour seems to be the highest in the two-wheeler loans segment at 2.45 per cent, while the same for personal loans stood at 0.86 per cent and consumer durable stood at 1.55 per cent.

In terms of outstanding balance, consumer durable loans led the pack with a 27 per cent jump for the three months ended March 2022 as compared to the year ago period, followed by personal loans at 22 per cent and credit cards at 17 per cent.

Vehicle financiers have been impacted due to supply chain problems in the auto segment, with two-wheeler and auto loans showing the lowest level of inquiries.

When it comes to loan approvals, the lenders are still taking a conservative stance, the report said, adding they are slow on new to credit customers.

The CIC's Credit Market Indicator (CHI), designed to provide India's credit industry with a reliable and contemporary benchmark of retail lending health, is trending upwards and showed at 95 in March 2022, similar to the level of 94 seen in March 2020, it said.

"Not only are we charting a general increase in our headline MI measure, but also observing decline in delinquencies, greater credit inclusion, and growth of credit in rural and semi-urban areas," the CIC's managing director and chief executive Rajesh Kumar.