Unsecured Lending May Now See Much Slower Growth for Few Months

With many new players entering the unsecured lending segment, specifically dependent on app-based lending, the segment may now see a much slower growth for at least a few months, Motilal Oswal Financial Services said in a report.

Reserve Bank of India (RBI) data suggests that the personal loan & credit card segments have reported a CAGR of 22 per cent over the past two years.

The RBI closely monitors lenders to check if growth has been swinging higher in any particular segment.

As a caution, the RBI then notifies lenders to moderate growth if it feels concerned.

A point worth noting is that the RBI has not cautioned about higher growth in housing loans and vehicle finance, as the collateral for these loans seems to be better, while for consumer credit, the collateral tends to be weaker, the report said.

“And as a result, delinquencies in the consumer segments could hamper the lender’s profitability. Hence, this move is aimed at curbing the run-away growth that the entire segment has been witnessing recently. NBFCs and digital/Fintech lenders will be significantly affected by this action as they do not have a diversified balance sheet," it added.

NBFCs may not be able to pass on the cost to customers, which may lead to some margin pressures in the near term.

The RBI has presented strong data analytics and projections, while there is no concrete data on default.

It can be speculated that the RBI had some worrying leading indicators which could have triggered this measure, the report said.