TransUnion CIBIL credit market indicator launched to chart health of India’s retail lending market

TransUnion CIBIL credit market indicator launched to chart health of India’s retail lending market

TransUnion CIBIL today released its unique Credit Market Indicator, which provides a credible and current baseline of retail lending health in India (CMI). It is a monthly metric meant to offer lenders and policymakers the information they need to make better decisions.

CMI 87 (up from 78 in February 2021) shows the credit market in India is resilient and returning to growth despite the pandemic's second wave. Because the CMI is not a static index, its level does not indicate credit health. The CMI number should be compared to preceding periods, not alone. A lower CMI score indicates a worsening of credit health, whereas a higher number indicates an improvement.

TransUnion CIBIL, a long-time financial ecosystem partner in India, launched several efforts and solutions* during the epidemic to help revive the credit industry and the economy. The CMI is aimed to enhance market trust by giving actionable research-based insights.

A significant statistic for stakeholders in the Indian retail credit ecosystem

TransUnion CIBIL CMI is a depersonalised and aggregated assessment of consumer credit health trends. On the other hand, it assesses the impact of hundreds of reported credit variables on changes in consumer credit patterns. The four pillars of demand, supply, consumer behaviour, and performance** are summed weekly to monitor changes in credit health. These are integrated into a single indication.

“Despite the pandemic's second wave, the TransUnion CIBIL CMI demonstrates that India's retail credit sector is primed for solid growth, driven by both demand and supply. Between February and October 2021, the number of inquiries climbed by 54%. In August 2021, outstanding amounts and credit active consumers climbed by 8% and 7%, respectively. These findings reflect both the government's strategy and the market's rapid adaptation, with Public Sector Banks driving the credit growth revival. Along with rising consumer demand, supply has risen as well. To cope with the changing climate, lenders have quickly reacted to the shift in new credit origination via digital channels. “They've done this while adjusting risk management strategies,” says Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL.

Demand and supply credit growth indicators demonstrate resilience

The CMI tracks the health of India's retail lending market during major economic and market shifts. Between 2016 and mid-2017, the CMI fell sharply as credit growth slowed and delinquencies rose modestly (marked as orange in chart 1). In late 2017 and early 2018, increased economic growth and the introduction of FinTech and other non-bank lenders (NBFCs) increased market demand and supply, and credit health improved (marked as blue in chart 1). As economic growth slowed in 2018, the NBFC liquidity crisis restricted market credit supply, causing a mild decline in relative credit health.

The CMI demonstrates that the pandemic had the greatest impact on the retail lending market in the early months, but that the sector has become more resilient over time (COVID-19 times marked in dark green in chart 1). From February to May 2020, the CMI dropped 17 points to 83.

The second pandemic wave hit the country hard, but the retail credit market held up better as lenders altered their business models and prepared. Moreover, central and state governments created micro-containment zones to avoid a total lockdown. This reduced the impact on the economy and credit activity. The CMI rose nine points to 87 in August 2021, from a low of 74 earlier in the year. A year ago, demand was down 31% between February and August of 2021, while this year it was up 20%. In the first week of November 2021, TransUnion CIBIL received a record number of inquiries, showing a significant increase in credit demand and economic activity in India.

Geographically, states with faster COVID-19 recovery also had better credit health. In August 2021, the CMI for Maharashtra rose 4 points YoY. During the same period, the Kerala CMI fell -12 points.

Public Sector Banks Lead Retail Credit Growth Revival

During the epidemic, the TransUnion CIBIL CMI tracks the relative credit health of PSUs, PVTs, and NBFCs. PSU lenders had a less impact on CMI early in the epidemic because they were among the first to resume lending after the initial lockout. This accelerated lending growth for PSU lenders.

NBFC lenders, on the other hand, reported less recovery due to increased delinquencies and slower supply recovery due to liquidity difficulties. The credit health of both NBFCs and PVT lenders has recently improved, owing to their excellent adaptation to post-second wave conditions.

Recovering through informed lending

The CMI can help lenders in numerous ways. It might assist them evaluate the effectiveness of their present marketing initiatives. It can also assist them assess their portfolio's health, compare it to industry peers, and make any corrections.

The post-pandemic recovery's shape and course will be unpredictable given the global economic situation. Making informed lending decisions requires a thorough view of the overall credit market as well as particular customer information. Demand and supply are recovering, but new tendencies must be closely monitored.

We are committed to providing our clients and stakeholders with research-based insights to help them build their businesses and promote financial inclusion. A valuable tool for strategic business and policy choices, we believe the Credit Sector Indicator is uniquely positioned to gauge the overall health of India's retail lending market in one indicator. “Better and more timely data will help lenders design stronger strategies that support consumers and eventually drive lending that drives economic growth,” Kumar adds.