Banking & Fin: Key takeaways from expert call on retail lending trends

24 Jan 2024 , 11:35 AM

Analysts of IIFL Capital Services recently hosted Mr. Raoul Kapoor, Co-CEO of Andromeda, to discuss retail lending trends. Post pandemic, the fast growth in unsecured PL has been aided by market expanding to top 40 cities (vs 20 earlier) and growth of self-employed PL. Apart from slowdown in small ticket PL, growth has moderated even for large ticket PL post the RWA increase and is likely to further slowdown in the seasonally strong Q4FY24. AQ for Andromeda originated large ticket PL (ATS: Rs450k) remained benign with overall NPAs of 0.6-0.8% across all lenders (banks & NBFCs). Competitive intensity in the prime segment was high, limiting rate hikes for prime salaried customers in top 20 cities. Analysts of IIFL Capital Services note that trends from Q3FY24 pvt. bank results do indicate retail unsecured loan growth moderating, slippages inching up and lenders taking 20-30bps of rate hikes. Mr. Kapoor also highlighted that HDFCB was gaining market share in prime HL and that the competitive intensity in affordable HL was rising. 

Andromeda is the largest retail direct sourcing agent (DSA) in India sourcing ~Rs900bn of retail loans annually across prime and affordable HL, LAP, PL and business loans for its 160+ partner banks and NBFCs. It is present in over 1,100 cities across tier 1/2/3 cities in India. Highlights of the webinar are presented below: 

Personal loans: Expansion beyond top 20 cities and salaried customers post pandemic According to Andromeda, large ticket personal loan (PL) market has undergone structural changes post pandemic with the lenders expanding the product offering to new geographies (from top 20 cities to top 40 cities now) and rising share of self-employed customers (4- 5% pts). Consequently, top 35 cities now contribute 80-85% of PL business compared to just top 20 cities pre-pandemic for Andromeda. NBFCs have a higher salience of self-employed customers (60%) compared to banks (30%) and are gaining market share in the segment. Also, the share of Cat B customers, having higher delinquencies, has increased over last two years. 

Growth slowing down after risk weight increase in mid-Nov 

PL growth has moderated post the RWA increase with lenders turning cautious on small-ticket PL, loans sourced through Fintechs and customers having credit score below 700. According to Mr. Kapoor, none of its partner banks and NBFCs are active in these segments (PL ATS of Rs450k for Andromeda). Nevertheless, he expects overall volumes to be muted in Q4FY24, which is a typically strong quarter for lenders. Lenders have also curtailed special volume based incentives for DSAs given the muted growth expectations. Analysts of IIFL Capital Services note that Q3FY24 bank results do demonstrate this slowdown in unsecured retail loan growth.