The Indian “consumer finance market will witness an 18% CAGR to a US$1.2 tn opportunity by 2020. While the market still remains under penetrated (70%+ of households have no liabilities of any sort), the organised players (banks + NBFCs) have developed diverse products targeted at all segments of the income pyramid, across multiple secured and unsecured loan types. Overall, we believe consumer lending can be a significant growth driver for Indian financials in the coming years” says a just released Credit Suisse report.
In particular, it believes that the “private lenders (both banks and NBFCs) have opened new loan segments that were hitherto solely controlled by the PSU banks (e.g., small business loans). “Overall, we believe that select banks and NBFCs will be able to leverage their expertise and established market positions to grow their retail loan books faster than the market projections we have painted above”.
According to Credit Suisse this would be a stronger second innings. “While the experience of the last consumer loan cycle (2004-07) was bitter, we believe that a number of structural changes in the market could allow for a steady, profitable growth in the next few years. Important among these are the rise of credit bureaus (150 mn+ individuals are captured already), multiplicity of new secured loan options, and the emergence of large internal customer bases for most banks to tap into (especially for unsecured lending). To make matters better, the expected fall in rates should spur growth in rate sensitive segments such as mortgages and auto loans” it says.
It believes the next round of retail lending growth could remain orderly and profitable, due to the multiple structural factors that have evolved in recent years. A number of secured lending options have emerged (such as gold loans and loans against property). Secondly, credit bureaus have matured, and brought a sea change in the banks' approach to retail loans. Credit bureaus help not only in screening at origination, but, probably more importantly, in constant monitoring of portfolio post disbursements. Thirdly, the leading banks have grown their own customer bases over the past few years (mostly on the liability side) that they have a ready customer base to tap into.
To add to this fertile environment, the expected fall in rates could trigger higher growth in many rate sensitive segments such as mortgages and auto loans. Indeed, for the wholesale funded entities like NBFCs, the fall in rates could also lead to higher profitability.