Defaults increased in unsecured loans especially small ticket size personal loans
New Delhi: Foreign brokerage Nomura said in a report that data and management observations from NBFCs/banks show that there is a decline in unsecured loans, especially small ticket size personal loans (STPL), below Rs 50,000 and fintech partnerships. Loans obtained through this medium are getting delayed.
Nearly 25 per cent of incremental originations by volume in the last two years came from small ticket personal loans (STPLs), but by value it was only 2.5 per cent of system PLs.
Moreover, in the June 2023 quarter, 51 per cent of borrowers taking small-ticket personal loans already had more than four credit products at the time of taking another new loan (17 per cent in the June 2019 quarter).
The increase in crimes in STPL is unlikely to cause problems at the system level. However, this should have a negative impact on some medium/small sized NBFCs which have grown rapidly in the sector over the last few years and are playing a significant role in unsecured loans.
Nomura said around 25-30 per cent of the incremental credit growth for NBFCs during FY22-2Q24 came from unsecured loans and hence rising defaults should have a negative impact on the credit growth of NBFCs first.
Additionally, if stress in unsecured loans continues to increase, the credit cost trajectory for NBFCs in FY20 will be higher than historical trends and may negate the expected positive impact of the repo rate cut on cost of funds.
In line with previous quarters, unsecured loans continued to grow faster than those of NBFCs/banks in the second quarter due to increased competition in the secured segment. During FY22 to Q2 ’24, unsecured loans to NBFCs grew 75 per cent versus 45 per cent for the overall system.
The total AUM of these 13 NBFCs registered a growth of 24 per cent in Q2 ’24 (37 per cent in FY22-Q2 ’24), of which the PL portfolio grew at a faster pace of 51 per cent in Q2 ’24. ,
