The recent Credit Market Indicator (CMI) report by TransUnion CIBIL paints a mixed picture of India's credit market. While overall delinquency levels remain stable, there's a noticeable rise in 90-day delinquencies (unpaid debts past 90 days) for credit cards and personal loans.
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Delinquency Trends:
The balance-level delinquency rate for credit cards hit 4.39% in the quarter ended June 2023, up 110 basis points from the same period last year. This indicates an increase in credit card holders unable to make timely minimum payments.
Similarly, personal loan delinquencies climbed to 2.57%, up from 2.22% a year ago. This suggests more borrowers struggling to repay their personal loans.
Amidst Stability, Risks Emerge:
Despite rising delinquencies in credit cards and personal loans, the overall credit market remains stable. The CMI report highlights healthy retail credit growth, indicating ongoing consumer borrowing and spending.
However, the report cautions that rising delinquencies in specific segments could signal underlying risks. The report's authors suggest that the increase in personal loan delinquencies could be attributed to the rapid growth of small-ticket personal loans, often given to borrowers with less credit history.
Factors Driving Delinquencies:
Several factors could be contributing to the rise in delinquencies for credit cards and personal loans. One possibility is the rising cost of living, putting pressure on household budgets and making it harder for borrowers to make payments.
Another possibility is the easy availability of credit leading to overborrowing by some consumers. This could be exacerbated by the rise of online lending platforms, simplifying loan acquisition.
Impact on Borrowers and Lenders:
The rise in delinquencies could negatively impact both borrowers and lenders. Borrowers unable to repay their debts may face credit score damage, making future borrowing difficult.
Lenders could also face increased losses if more borrowers default on loans. This could lead to higher interest rates and stricter lending standards.
Conclusion:
While rising delinquencies in credit cards and personal loans are concerning, it's crucial to remember that the overall credit market remains stable. Borrowers should exercise caution with their spending habits and avoid taking on excessive debt. Lenders should carefully assess creditworthiness before granting loans.
