The growth of unsecured personal loans (including credit card recipients, consumer term loans and other personal loans) in banks from March 2017 to March 2023 stood at a CAGR of 21% surpassing the growth of personal loans which exhibited a CAGR of 19% during the same. period Unsecured personal loans account for nearly 1/3rd of the total bank personal loan credit of ~Rs 41 lakh crore as on March 31, 2023, according to CareEdge Ratings.
The total credit combined for Banks and NBFCs saw a CAGR of 12% during FY17 to FY23 and stood at Rs.170.5 lakh crore in Mar’23. During the same period, the personal loan book (including all retail business for NBFCs) grew higher with a CAGR of 19%. In absolute terms, personal loan credit from banks and NBFCs has almost tripled in the past six years and stood at Rs.51.7 lakh crore forming 30.3% of the total loan book as on March 31, 2023, against Rs. 18.6 lakh crore or 21.5% of the total loan book as on March 31, 2017. Thus, the rate of growth of personal loan books (which typically means consumer loans) is almost double that of the rest of the banking sector lending (commercial lending)
Unbridled growth
During the fiscal years 2017 to 2023, personal loan credit experienced a strong growth of almost 1.5 times the overall credit growth observed in both Banks and Non-Banking Financial Companies (NBFCs). Within personal credit (which typically means consumer loans), unsecured personal loans outpaced the overall expansion.
of the personal loan book and constitutes almost one third of the total personal loan segment loans. This trend has been further facilitated by the emergence of Fintech and Digital channels, contributing to increased origination volumes. The emphasis on smaller portfolio size loans by NBFCs has been a significant driver of
volume growth in the unsecured personal loan segment.
High growth in unsecured personal loans is driven by a host of factors with some of these factors being structural in nature, and therefore, going forward, a relatively higher growth rate is likely to continue. However, the recent RBI notification, aimed at curbing high consumer credit growth, is expected to impact the momentum in growth in the immediate to near term.
Although the asset quality has remained stable, there is a need for vigorous monitoring, especially of small portfolio size loans; moreover, given that each player focuses on specific sub-segments, this can lead to divergent credit cost trends in the unsecured retail portfolio of these players.