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Retail-led credit model faces headwinds as home loan delinquencies rise: RBI

The Reserve Bank raised concerns about deteriorating credit quality in lenders’ retail books and warned that the retail-driven credit selling model, led by home loans, is currently facing headwinds.

Between April and the first week of December, credit disbursements increased to 7.1% against growth of 5.4% a year ago and 5.2% in March 2021, according to the financial stability report released Wednesday.

The report indicates that in recent years wholesale credit growth has lagged; consumer credit, on the other hand, generally recorded double-digit growth, although the pace of growth remained below the pre-pandemic level.

Home loans and other personal loans have constituted up to 64% of additional credits over the past two fiscal years.

“The retail-driven credit growth model is facing headwinds: first, delinquencies in the consumer credit portfolio have increased, and second, the new creditors segment, a key driver of growth consumer credit in the pre-pandemic period, shows a decline in origins,” the report said.

The share of retail/personal loans constituted 64.4% of incremental credit disbursements in FY21, up from 64.1% in FY20. Of this, housing loans constituted 31, 2% of total incremental credit in FY21, up from 30% in FY20.


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