Home loans inquiries slowing; increase in unsecured credit as youth drive demand

Mumbai: Home loans, the mainstay of retail lending, witnessed a dip in demand in the December quarter, a credit information company (CIC) said on Wednesday.

However, there has been a 'marked increase' in demand for credit cards and personal loans, which constitute the more stressful unsecured loans portfolio for banks, Transunion Cibil said.

The demand for unsecured lending products is being driven by the adoption of consumption-led credit products, the CIC said.

Inquiry volumes for home loans for the three months ending December 2022 were 1 per cent lower than the year-ago period, while the same for personal loans and credit cards shot up by 50 per cent and 77 per cent, respectively, it added.

From a loan origination perspective, home loans witnessed a 6 per cent dip by volume and 2 per cent by value in the December quarter against a healthy uptick in personal loans, credit cards and two-wheeler loans segment.

It can be noted that the period saw a surge in interest rates, which led to concerns over the impact on home loans that are longer term in nature, and any increase in interest rates pushes up either the monthly loan servicing costs or increases loan tenors.

The CIC said young consumers now account for a major share of the demand for loans, pointing out that 43 per cent of the inquiries were by people between 18-30 years of age in the December quarter compared to 40 per cent in the year-ago period and 36 per cent in the December 2020 quarter.

From a geographical perspective, there has been an increase in the share of inquiries from the rural and urban segments at the expense of inquiries from metro areas, it said.

In what should be a data point keenly looked on by the lenders, potential borrowers classified as 'below prime consumers' saw a 4 percentage point increase to 40 per cent in the December quarter compared to the same period a year ago.

Home loan approval rates have come down marginally to 41 per cent, while both personal loan and credit cards saw sharper corrections at 21 per cent each, the report said.

From an outstanding balances perspective, home loan balances were up 16 per cent in December 2022 compared with a 19 per cent growth in credit cards and 33 per cent in personal loans, it added.

The credit card segment has displayed a 0.25 per cent increase in non-payments for over 90 days at 2.31 per cent, while the same for personal loans has improved by 0.14 per cent to 1 per cent, and home loans have seen a 0.39 per cent improvement to 1.21 per cent.

"In view of the impact of global headwinds, it is crucial to continue to carefully monitor credit risk, especially early delinquencies and leverage ratios," its managing director and chief executive Rajesh Kumar said.