Coronavirus pandemic dents growth of personal loans segment in FY21

Public sector banks and private banks, largely disburse high value personal loans or pre-approved loans to customer segments who may not be banking with NBFCs.
The coronavirus (Covid-19) pandemic dented the growth in the personal loans segment as the portfolio expanded by a meager 0.57 per cent in the first five months of the current fiscal (FY21), according to CRIF High Mark.

The outstanding portfolio stood at Rs 5.07 trillion at end of August 2020.

Navin Chandani, MD & CEO, CRIF High Mark said that in FY21, Covid-19 disruptions had resulted in restricted lending by financiers who were earlier steering the volume growth of the PL market. There is small growth and not a sharp clampdown, he added.

The personal loan segment had registered a growth of 26.5 per cent in the year ended March 2020, when the Covid-19 pandemic hit the country and the portfolio outstanding was Rs 5.04 trillion. This segment has seen exponential growth in the last few years as lenders focused increasingly on customer acquisition through small ticket lending, targeting young, low-income borrowers with short term credit needs.

 
This growth was mainly driven by non-banks, fintechs, and neo-age lenders. NBFCs had more than 42 per cent market share by volume and 17 per cent by value as of August 2020. Share of non-banks has come down marginally and that of private banks and public sector banks has increased.
Public sector banks and private banks, largely disburse high value personal loans or pre-approved loans to customer segments who may not be banking with NBFCs. Since the Covid-19 pandemic, the share of NBFCs and private banks in originations in FY2020-21 till Aug has reduced, while that of public sector banks has increased. “Many public sector banks have also offered top up personal loans to their borrowers to tide over these trying times”, said Chandani.

“In FY20-21, Covid-19 disruptions have resulted in curbed lending by financiers who were earlier steering the volume growth of the personal loan market. Incumbents with deeper roots in Tier II and III geographies –under relatively lenient lockdown, have shown more resilience towards the pandemic induced stress”, said CRIF in a report.

At the end of March 2020, active loans in the segment were growing at almost 60 per cent, but post the pandemic, this slowed down vigorously and at the end of August, growth in active loans was in the red.

The worrying fact is that amount delinquencies in the 31-180 days past due (DPD) bucket and 91 – 180 DPD bucket have moved up by 44 bps and 26 bps, respectively, while loan delinquencies have increased by 2X in the last two years, as of March 2020. As of August, loan delinquency reached 2.64 per cent because of surge in small ticket lending to risky customer segments. However, the stress at an overall level is still low.


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