2022 was a great year for retail credit despite the multiple interest rate hikes, showed a report titled ‘Moneymood Retail Credit Trends’ by BankBazaar.
Personal credit grew 20 percent to ₹37.7 trillion this year, of which, home loans grew 16 percent to ₹18.25 trillion, stated the report, citing RBI data. In fact, much of this spike in home loan demand was registered between March and October—a period that saw multiple rate hikes.
Outstanding credit cards peaked this year at around 8 crore, doubling over a five-year period. Most interestingly, as spending habits become increasingly digital, cash use is stagnating. The average ATM cash withdrawal has stagnated at around ₹4700, while the average credit card transaction has surged past ₹5000.
Indians have turned to UPI for small transactions, however, for higher ticket purchases, they are flipping their credit cards out, according to the report.
Borrowers ignore rate hikes
Of the total outstanding personal credit worth ₹37.7 trillion as of October 2022, housing loans accounted for 48.43 percent or ₹18.25 trillion, the largest share. Personal loans accounted for 26.26 percent or ₹9.9 trillion while vehicle loans had a 12.24 percent share with ₹4.6 trillion.
Credit cards had a share of 4.5 percent or ₹1.79 trillion while loans against FDs stood with a share of 2.61 percent with ₹983 billion. Education loans, loans against gold, consumer durables and loans against shares, bonds, etc. had a share of 2.40 percent, 2.22 percent, 0.92 percent and 0.18 percent, respectively.
“The demand for credit remained high despite massive rate hikes. Home financing had a great year as pent-up demand was serviced. Rapid rate hikes with stubborn inflation have made credit cards indispensable as the first line of credit. Secured loans such as loans against FDs grew rapidly, indicating a mature borrower segment that does its homework before accessing credit,” said the report.
However, it is expected that the effects of rate hikes may be felt soon.
Rapid rate hikes with stubborn inflation have made credit cards indispensable as the first line of credit. Credit card spends got bigger, and interestingly, ATM cash withdrawals stagnated at 2020 levels, said the report.
A 19.6 percent increase was reported in credit cards outstanding in the country this year with about 8 crore cards outstanding currently. The average credit card transaction during the Diwali month was at ₹5,049, up from ₹4,436 seen last year.
The report forecasted that co-brand credit cards will up the ante on rewards and convenience. For small spends, cash will stagnate as UPI gets stronger whereas for bigger spends, credit cards will be the go-to instrument for consumers, and average spending will continue to rise.
Indians want home ownership
The 2022 BankBazaar Aspiration Index report showed Indians consider home ownership to be highly aspirational as well as achievable with the help of cheaper loans and government subsidies. Now, despite the rising interest rates, demand for home loans is yet to slow down.
As per RBI data, home loans grew 8.4 percent between March and October, faster than the preceding six month period during which there were no hikes, the report stated.
Even if the demand for housing finance is slowing, it is yet to be seen.
At the current rate, the segment is likely to grow to Rs. 20 trillion and hold its share through the new year as real estate continues its post-pandemic upswing.
However, interest rates are expected to keep climbing through the first half of 2023 if inflation remains untamed.
Other retail loans
Though loans against FD, gold, shares, and bonds make up a small share of the retail credit market, these are rapidly growing segments. As interest rates rose, Indians borrowed smartly by pledging assets to secure lower interest rates. Loans against FDs have risen 54 percent since the end of 2020, while gold loans have risen 58 percent in the same period.
The slowest-growing category of retail loans this year was education loans. This may perhaps be a factor of greater difficulties for students in accessing education abroad, the report mentioned.
On the other hand, there's no stopping the demand for big-ticket items such as electronics and vehicles—and therefore, there's no stopping the demand for finance.