RBI flags concerns on deteriorating credit quality in retail books of lenders
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The Reserve Bank of India (RBI) has flagged concerns on the deteriorating credit quality in the retail books of lenders and warned that the retail-led model of selling credit, led by housing loans, is confronting headwinds now. According to the financial stability report, between April and the first week of December, credit disbursal grew to 7.1 per cent as against 5.4 per cent growth a year ago and 5.2 per cent in March 2021.
The report has stated that in recent years, growth in wholesale credit has been lagging; on the other hand, retail credit was generally recording double-digit growth, although the pace of growth remains below the pre-pandemic level. It also noted that housing loans and other personal loans constituted as much as 64 per cent of incremental credit during the last two financial years.
It further said the retail-led credit growth model is confronting headwinds: first, delinquencies in the consumer finance portfolio have risen, and second, the new-to-credit segment, a key driver of consumer credit growth in the pre-pandemic period, is showing a decline in originations. The share of retail/personal loans constituted 64.4 percent of incremental credit disbursal in FY21, up from 64.1 per cent in FY20. Of this housing loans constituted 31.2 per cent of the total incremental credit in FY21, up from 30 per cent in FY20.
