According to CIBIL, money supply might remain adequate in FY21E as liquidity may not be a challenge due to rate cuts and other fiscal measures by the regulator.

The spread of Coronavirus has sharply impacted the demand for retail credit, which in terms of inquiries fell sharply in the month of April this year from an indexed value of 200 in February to 150 in March to <25 in April 2020. This fall was much sharper than the previous financial crises over Q2CY08-Q1CY09FY (~50% drop). The demand, however, revived a bit in May 2020 to ~50, according to CIBIL.

This was highlighted during a CIBIL Webinar, hosted by Centrum Broking, to assess the impact of COVID-19 on retail credit.

CIBIL analysed the relationship of macro-economic variables and key product inquiries. The findings were: home loan (HL) and credit card (CC) enquires were associated with wealth creation, Loan Against Property (LAP) demand is linked with IIP, private consumption and auto loans move in tandem while personal loan (PL) inquiries are closely associated with household financial liabilities.

Based on these findings, CIBIL believes that secured credit demand could be more negatively impacted than the demand for unsecured credit. It expects a sharper decline in demand for secured credit (home loan, LAP and auto loan) due to reduction in affordability, drop in real estate prices and discretionary spending.

According to CIBIL, money supply might remain adequate in FY21E as liquidity may not be a challenge due to rate cuts and other fiscal measures by the regulator. Consequently, lenders would be more willing to disburse home loans and credit card loans, while they would be cautious on personal loans, LAP and auto loans. On asset quality, personal loans, credit card loans and Loan Against Property could be most impacted owing to job losses, least payment priority and irregular cash flows, respectively, while home loans and auto loans would be best placed as they are secured.

For CY20, CIBIL expects a decline of 11%/2.9%/1.7% in home loans, LAP and auto loans. Contrastingly, demand for unsecured credit in terms of personal loan/credit card loans could rise by 15.1%/9.6% in FY20, driven by need to bridge personal finance gap and increase in digital payments.

Over the last one year, delinquency rate of very high-risk segment has moved up for home loans and LAP. Personal loans are likely to be most impacted given job losses/pay cuts followed by credit cards which may also be impacted as it is last in payment priority. Home loans are the best placed in terms of payment priority though some default may be seen in under-construction home loans. LAP may also possess higher risk given the lockdown-related cash flow impact on LAP customers.