The Reserve Bank of India (RBI) has expressed concern over the mounting stress in the consumer credit segment, despite the currently low levels of delinquencies. In its recently released Financial Stability Report, the central bank highlighted that a significant 42.7% of consumers with a consumer loan already held three live loans at the time of origination, while 30.4% had taken more than three loans in the last six months.
Furthermore, the RBI revealed troubling statistics, such as 7.3% of customers with a personal loan below Rs 50,000 having at least one overdue personal loan. The relatively high vintage of delinquency in personal loans, at 8.2%, indicates a decline in underwriting standards, according to the central bank.
The RBI has already taken steps to address the growing risk, including clamping down on unsecured credit in mid-November and placing restrictions on bank investments in Alternate Investment Funds (AIFs) last week. RBI Deputy Governor Swaminathan Janakiraman expressed concerns about the inter-connectedness between banks and non-banking financial companies (NBFCs) and suggested additional measures may be implemented.
In response to the rising risk, the RBI increased risk weights for assets like credit card receivables, making them costlier. While these measures aim to control the growth in consumer loans, there is a downside, as it may limit access to formal credit for unserved and under-served borrowers.
The co-lending model, introduced in 2020, aimed to address this issue by combining the distribution reach of NBFCs with the lower fund costs of banks. However, with lenders expected to tighten credit filters, a slowdown in the co-lending segment is anticipated.