Retail loans to double to Rs 96 tn in 5 years: ICICI Bank report

Retail loan book of financiers in India will double to Rs 96 trillion by March 2024, compared with Rs 48 trillion in March 2019, according to an ICICI Bank - CRISIL report. The report predicts that this rapid growth will take place in the next 5 years on the back of increased demand for private consumption (namely home, car, consumer durables, credit cards etc), willingness of consumers to take loans, increased availability of various consumer data, improved usage of data analytics and regulatory initiatives propelling growth in low cost housing loans and MSME (Micro, Small & Medium Enterprises) loans.

Called, ‘Mining the Golden Opportunity in Retail Loans’, the report also reveals in-depth insights into growth drivers of each retail asset class and outlines the major economic, regulatory and technological interventions that will drive the expansion of the retail loans market. 

According to the key highlights of the report, which was launched in Mumbai at the Bank’s headquarters on December 17, the main segment contributors for the growth are as follows:

·         Mortgage loans market—normal & low cost housing and loan against property—is expected to double to Rs. 46.1 trillion in FY24

·         Unsecured loans -- personal loans and credit cards—to more than double to Rs. 13.8 trillion in FY24

·         Loans to MSMEs are likely to more than double to Rs. 13.2 trillion

·         Vehicles—commercial vehicle, four and two-wheeler—loans are tipped to nearly double to Rs. 17.5 trillion

Anup Bagchi, Executive Director, ICICI Bank says, “India’s GDP per capita in terms of purchasing power parity (PPP) is now USD 7762. Our analysis predicts that this junction will prove to be an inflection point for the country, as it was with another large economy a few years ago. We foresee that in the next five years, the domestic retail loans market is poised to double to Rs. 96 trillion."

Five pillars that are going to support expansion of the market: 

(1) greater information availability progressively reducing the risk in lending 

(2) lower costs for customers due to intensifying competition 

(3) regulatory and government initiatives (such as the proposed public credit registry, loan co-origination by banks and non-banking financial companies, boost to affordable housing and ironing out of glitches in lending to MSMEs) 

(4) five-fold increase in digital lending to Rs. 15 trillion, wherein loans are sourced, underwritten and sanctioned digitally, lowering costs for financiers, and 

(5) reduction in operating costs due to greater usage of technology and data analytics which will, in turn, boost profitability.

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Other growth drivers that would provide a fillip to orderly development of the market 

1. Enhancing focus on digitisation of ownership of land records and providing access to the same to financial institutions with requisite consent,

2. Greater thrust on digital payments,

3. Developing industry-wide standards on key aspects such as innovation hub & environment, data security, customer privacy, consumer protection and loan pricing

Given all these as well as the positive shift towards higher-yield unsecured lending, systemic profitability is expected to remain steady.

Further, new private banks are also expected to gain market share from their public sector peers. Additionally, the entry of new types of players is likely in the market targeting specific segments, in line with global trends, according to the report.