‘Bubble risk’ brews as unsecured loans rise

‘Bubble risk’ brews as unsecured loans rise

News:

1.Banks’ unsecured loans are at a record high, contributing 32% to the retail loan basket, which at 25% of the total loan book, is almost at its peak, according to a report by Jefferies.

Important facts:

2. According to the RBI data the overall credit growth as on May 25 was 10.9% year-on-year, while retail loans grew 18.6% and outstanding dues on credit cards grew 33.1%.

3. The RBI observed that retail loans come with their own caveats.

4. However, the delinquency rate, has remained steady, a TransUnion Cibil study showed.

5. Delinquencies for personal loans fell 19 basis points (bps) over the year to 0.52% at the end of March, while for credit cards it rose 9 bps to 1.7%.

6. Indian consumers continue to expand beyond cash-based purchases, these products provide access to short-term liquidity and transactional convenience.

7. The Jefferies report highlighted the following points:

• The report, said unsecured personal loans grew the fastest, at 49%, driven by a 27% growth in customers and 19% growth in average ticket size.
• The bigger worry is the growth in the ‘New to Credit’ segment (and the segment [contributes about] 65% of new origination.
• The number of consumers with access to credit cards as well as aggregate balances had reached all-time highs.
• Credit card outstandings grew 43% till March 2018.
• Unsecured loans had grown at a compounded annual rate of 31% over the last four years for the top 5 private banks — HDFC, Axis, Yes, IndusInd and Kotak Mahindra.
• Personal loans and dues on credit cards are examples of unsecured loans, while other retail loans include home and auto loans
• Unsecured loans are riskier as they lack collateral that accompany home, auto loans.