Interest rates at the lowest they have been in decades, combined with a build-up of precautionary savings across certain segments of the population, have spurred demand for home loans, shows data from credit bureau TransUnion CIBIL. This pick-up led the improvement in retail credit inquiries, even though lender approvals remain below previous levels.
Asset quality trends and efficiency in collecting overdue loans, which CIBIL documents only until August, capture only a partial picture as the RBI-approved moratorium ended in August and was followed by a one-time restructuring scheme.
Inquiries Are Rebounding…
The CIBIL data shows that inquires for retail credit in November were only 7.3% below a year ago. Demand has rebounded sharply from May when retail credit inquiries had fallen 72% compared to a year ago. Since then, they have steadily rebounded the CIBIL data shows.
Public sector banks saw the biggest rebound in inquiries in the unlock phase, as they were early in recommencing operations than their peers, CIBIL said. Private banks have seen growth return in November but NBFCs have seen the slowest resumption in inquiry volumes among all lender categories, the credit bureau said.
Home Loan Inquiries Quickest To Rebound; Personal Loans Slowest…
Anecdotal trends suggesting a pick-up in home loan demand bears out in the data.
- CIBIL data shows that inquiries for loans were running 14% over a year ago in August and were up 9% in November compared to last year. This, after dipping 61% in May.
- Auto loan inquiries are up 5% in November compared to a year ago after remaining negative until August.
- Personal loan demand remains sharply below what was seen last year with inquiries still 43% below a year ago.
- Credit card inquiries are also below last year’s levels, down 4%.
But Are Inquiries Turning To Approvals?
While inquires have picked up, the supply of new credit appears to have declined, going by the data for originations. This is only available till August.
According to the data, at least until August, originations (as measured by new account openings), were down 26.6% across categories. However, according to CIBIL, lender behaviour has slowly changed.
“When lockdown restrictions started to ease, there was a marked change in lender behaviour, with some returning to the market far quicker than others. Equally, lender attitude to risk changed, with some providers moving away from the new lending market almost completely,” CIBIL said.
The data for approvals as a share of inquires also suggest that lenders remain wary despite easy liquidity conditions and a rebound in demand. To be sure, approval rates had rebounded from the lows of May.
Among key categories, approvals rates in August 2020 remained below what was seen in August 2019 for all categories except personal loans.
- Home loan approval rate was at 17.5% of inquiries compared to 26.6% last year.
- Auto loan approval rate was at 40.8% compared to 42.6% last year.
- Personal loan approval rate was at 31.6% compared to 29%
- For credit cards, approvals were at 20.9% of inquiries in August 2020 compared to 29.7% last year.
Asset Quality Picture Remains Murky
While defaults across retail credit are widely expected to rise, the extent of asset quality stress remains unclear. CIBIL in its report provides data till August, when the RBI moratorium was still in place. It ended on Sep. 1, following which a one-time restructuring scheme was permitted.
Based on CIBIL data, delinquencies, which is defined as loans past due by 90-days or more, increased for NBFCs even during the moratorium period.
- Delinquencies for NBFCs increased by 49 basis points year-on-year in August 2020.
- Delinquencies improved for PSU banks by 28 basis points over a year ago, partly because of accelerated loan originations resulting in better credit growth.
- Delinquencies for private banks improved 10 basis points year-on-year.
The CIBIL report also shows the share of loans, across different categories, that are overdue by more than 30 days. However, it does not specify whether this subset of loans includes those where the moratorium had been applied. This data shows a jump in overdues on the credit card portfolio but not in the case of other categories of retail loans.
In response to a query from BloombergQuint, CIBIL said that lending institutions do not flag loan accounts which may be under moratorium when they submit data to us. “Therefore we do not have data on which of the loans are under moratorium.”
