Retail Loans In 2023 Grow 18% YoY, Unsecured Lending Sees High Growth: Report

Retail loans in 2023 grew 18 per cent year-on-year (YoY), with unsecured lending (those without collateral) continuing to see high growth. Personal loans and credit card spending during the year jumped 22 per cent and 28 per cent, respectively, according to the latest Reserve Bank of India (RBI) sectoral credit growth data in the sixth edition of the BankBazaar Moneymood Report.

The BankBazaar Moneymood Report summarises retail credit trends in the year gone by and expectations for 2024.

Currently, there are 94 million credit cards in the country servicing transactions worth Rs 5,577 on average. According to the report, the average personal loan amount disbursed in 2023 stood at Rs 1.71 lakh.

There was no major impact of high-interest rates and elevated inflation on credit demand.

Among the loan categories, housing loans accounted for the major chunk. The housing loans made up 47 per cent of the total retail loans and grew 14.5 per cent YoY to Rs 2.14 lakh crore. Auto loans recorded another year of 20 per cent YoY growth to Rs 5.53 lakh crore, according to the report.

However, the share of home and auto loans slipped 127 basis points (bps) to 59 per cent of the retail credit pie, while the share of personal loans and credit card dues grew 137 bps to 33 per cent. One bps is one-hundredth of a percentage point, according to the report.

RBI Norms on Unsecured Retail Loans

Flagging high growth in certain components of consumer credit, the RBI in November tightened norms related to unsecured lending portfolios of commercial banks and non-banking financial companies (NBFCs). It raised risk weight by 25 per cent on consumer credit exposure of banks and NBFCs. The move was expected to raise lending rates for borrowers.

Earlier, consumer credit attracted a risk weight of 100 per cent, which was revised upwards to 125 per cent.

“On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, by 25 percentage points to 125,” the RBI had said in a circular on November 16.

Risk weight is the capital that banks need to set aside for every loan.

In October, RBI Governor Shaktikanta Das said the central bank was closely monitoring some fast-growing personal loan categories for signs of nascent stress.

During interactions with MD/CEOs of major banks and large NBFCs in July and August 2023 also, Das highlighted high growth seen in consumer credit and increasing dependency of NBFCs on bank borrowings.