The credit landscape in the country is transforming with the profile of borrowers, the loans that they prefer and the lenders catering to them undergoing a shift in recent years. In this chat with businessline, Bhavesh Jain, MD & CEO, TransUnion CIBIL, gives us insights into the evolving trends in various loan products.
What is driving the stellar growth in gold loans and which borrowers are driving it?
The best way to start a conversation is with gold because India and Indians love gold. And now the love for gold is also transforming into gold loans. There are multiple reasons why gold loans are picking up in a big way. The first is the availability of gold in Indian households. Second is the ease of getting a gold loan. And when we look at it from the lender’s lens, it’s a secure product. It is available, at their premises, in case of any challenges with non-payment.
In the last 4 to 6 quarters, the gold loan has become the fastest growing retail credit product in the country. Home loans are still the number one in terms of outstanding loans in India and gold loans are at number two. Gold loan AUM has almost reached Rs 20 lakh crore and the credit loss is around 0.3%. It’s not just the millennials going for gold loans. Gen Z, or younger customers, are also going for it. One in five gold loans is taken by younger borrowers.
Historically, only the five southern states would go for gold loans, now the western and many northern states are also joining in the gold loan growth story. It’s not just a semi-urban or rural phenomena either. The borrowers are across geographies, including urban locations.
Another interesting trend is that 1 in every 5 gold loans is given to a borrower who already has an NPA on other trade lines.
What are some trends in the new to credit (NTC) category?
The share of new to credit loans has declined. If pre-COVID, that percentage used to be, say, 18 to 20% of the overall credit originations in a month or a quarter, it has come down to the range of 10 to 12% now.
There is enough data evidence to say that the new to credit borrower performs very similarly to near prime borrowers and hence it should be motivating for the ecosystem to encourage new to credit borrowers.
The preferred product for new-to-credit borrowers pre-COVID was agri loans and two-wheeler loans. But now consumer durable loans, especially the phone financing category, is bringing in more NTC borrowers. Today, the phone has become a productivity tool, whether you are in manufacturing, the service sector, or a content creator. You have entertainment and everything else bundled into a small screen. So, this is the go-to product for Gen Z and the youngsters, and this is where the bulk of new-to-credit is getting into the credit fold in India’s credit market.
You had a report with Niti Ayog on women borrowers in India. Can you share some of the trends that you found in that study?
The report which we did with Niti Ayog had some key highlights. First is that women borrowers have an affinity for gold loans. In fact, more than 1/3rd of the gold loans being taken in the country is being taken by women borrowers. And there are reasons why women borrowers have that connection with gold. Its because they own the gold. Second, if they are entrepreneurs, they prefer gold loans due to the ease with which it can be availed.
While they have taken to gold loans, women have also opted for personal loans and business loans. Second, if women borrowers are educated on self-monitoring credit report, scores etc, then the loan portfolio quality improves significantly.
The credit dispersion for women borrowers is happening across geographies. It’s not just the women in the urban locations who are accessing credit. Women borrowers in semi-urban and rural locations are also very comfortable accessing credit for their personal or business needs.
Your recent report showed that the share of credit cards in the total unsecured loan portfolio of retail borrowers is coming down. Can you walk us through how this is coming about?
Credit cards as a category, when we look at the 10-year period, have grown substantially; the outstanding balance has grown 8x. The number of card holders has grown from 1.4 crore to 5.2 crore. And at the same time, number of credit cards has grown all the way up to 10.7 crores. But in recent times, it has stagnated in a way that the number of cardholders continues to be 5.2 crore. And the outstanding balance continues to be around 3.1 lakh odd crore.
What it means is that the same borrowers are going for multiple credit cards. But today, a credit card is not the go-to product for new-to-credit borrowers. The new-to-credit borrowers are coming through the consumer finance or mobile financing route.
Within credit cards, the NTC proportion, which used to be 26%, has declined to as low as 7-8%. Credit card issuance in recent times is happening largely to customers who have existing credit facilities, which means they are established credit-tested borrowers, and within that, 70% of the loans or credit cards is happening to ETCC, which means that they already hold a credit card in their wallet.
Bulk of the borrowers who are taking credit cards are the ones who have credit facilities on their credit file for more than 2 years. They’re first going in for a consumer finance loan, as I said, then personal loan, and as the third product they’re going in for credit cards.
Once they take a credit card, there is a high chance that their fourth product could also be a credit card. And within that, what is also changing is that youngsters or the Gen Zs are taking credit cards.
Of the 5.2 crore, cardholders, we have put 4 different personas. One is the occasional card user, who uses the card more as a payment tool, or as a reward tool, or as a benefit tool. The slightly middle-aged borrower.
Second is the persona of card-centric users. Almost one-third of the population in the card universe is the card-centric users, who actively and heavily lean on credit card within their credit portfolio. Third is the diversified credit users, who use credit card, but they also use other consumption credit products. And, they are comfortable switching between multiple credit products, whether it’s a credit card or personal loan or anything else.
Fourth and the last category is the high exposure users who lean towards unsecured as a credit category. And they also have 3 or more credit cards.
There are around 60 crore consumers who have tested credit or have got access to credit. Of these, 25 crore consumers are credit active, and out of these, only 5.2 crore consumers are cardholders.
Now, if I take the quantum of cardholders as a proportion of credit active population, it’s just 25 per cent. In the US, UK, or Hong Kong, or Canada, this percentage is upwards of 70, 80, or even 95 per cent.
But why is credit card category stagnating?
Because today, consumer has a choice. If the consumer is using credit card as a payment tool or as a payment instrument, the consumer can also use UPI instead of a credit card. There are 600 million plus UPI access points for the consumer. This is as compared to 11 million odd credit card access points.
Now, if a borrower uses a credit card as a credit product, a consumer has multiple options in the form of a personal loan, gold loan or any other consumer finance loans. The accessibility of credit cards has not grown in the last four to eight quarters.
But while we say that it has not grown in terms of cardholders and balances, the portfolio quality has improved. A year back, the delinquencies were around 2%, but they have declined to 1.7% in the recent quarter.
