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“Growth in credit cards outstanding is significant at this point of time as it does mean that credit is being used for meeting daily requirements. With growth in consumption being more or less stagnant, higher use of credit cards does indicate that households in the lower income levels are meeting daily requirements by borrowing,” said Madan Sabnavis, chief economist, CARE Ratings.
The Cibil report shows that personal loans balances increased by 28.0% in Q3 2019 compared to the previous year. Balances in semi-urban and rural locations increased by 31.5% and in metro and urban locations the spike was by 25.8%. With almost 7.3 million personal loan accounts originating between July and September 2019, the origination volumes have more than doubled over Q3 2018. The company also found that almost 42.6% of the personal loan acquisitions are from individuals between the age group of 18-30 years.
“As we have seen, there has been a retail boom which is being supported by retail credit of which demand for credit cards is most rampant. The transactions are of a lower denomination at this level but do aggregate to a high amount. There has been some aggression shown by banks in selling credit cards with several offers thrown in,” said Sabnavis. “When incomes are stagnant and there aren’t adequate jobs in the economy, there’s a tendency to depend on credit which becomes a habit. Banks must monitor this to ensure delinquency doesn’t increase.”
Meanwhile, the decline in demand for passenger vehicles has decelerated the growth of auto loans. Auto Loan balances increased only by 10.3% in Q3 2019 compared to 16.8% last year. Home loans, which make for about 50% of the total consumer credit portfolio, too saw slower growth in the quarter. “Aspiring buyers are putting off purchase decisions because they lack confidence,” said the Cibil report. Home loan balances grew at 10.0% in 2019 compared to 20.3% in 2018.
“Auto and home loans are seeing saturation because cards and loans are being used for consumption purposes. Because cards are marketed at 2-3% per month, often people don’t realize the high interest cost which works out to over 30% per annum. Hence, it’s important to ensure you borrow only what you can repay,” said Sabnavis.
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