Small loan default rate lowest, study finds

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MUMBAI: Credit bureaus appear to help larger banks make prudent lending decisions when loans are not backed by collateral. Although personal loans, which are offered without any collateral, rose by more than a quarter in the three months to September, defaults are still lowest at 0.5%, a study from the bureau showed. Credit Transunion Cibil.

Personal loan accounts of banks and shadow banks reached 15 million, an increase of 26% year-on-year. These are small loans, in the range of Rs 1 to 5 lakh, and even their term is less than five years.

The number of credit card accounts increased by around 32% from last year to 36.9 million in the third quarter of 2018. Credit card accounts typically have less than Rs 1 lakh per account.

The study notes that the average balance per borrower is Rs 2.52 lakh, up 7.7% from the previous year. The serious delinquency rate is 0.52%, down one basis point from the previous year.

Severe default rates are measured as the percentage of balances that are 90 days or more past the due date.

Significantly, the default rate for personal loans or unsecured loans is the lowest of any retail loan product analyzed in the study. The mortgage default rate is highest at 3%, followed by the auto loan segment which has a default rate of 2.75%.

“From a consumer perspective, it is extremely important that borrowers understand the importance of continuing to make payments on time,” said Yogendra Singh, vice president of research and consulting for TransUnion Cibil. “These emerging consumers are starting to play a larger role in the Indian economy, and their ability to access and manage credit successfully will be critical to the future growth and health of the economy. ”

In the absence of demand from large corporate borrowers and in the absence of concerns about deteriorating assets, lenders have relied on personal loans to boost growth.


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