The pace of unsecured credit disbursal from banks and credit card companies may have dropped in the past one year due to the central bank’s tighter norms, but the share of credit-linked consumption has gone up by 4-5 percentage points on a modest base, as per multiple industry executives.As per mobile phone sales tracker Counterpoint Research, 33% of all smartphones sold during the festive season last month were sold on credit as compared to around 29% a year back, while for premium smartphones (priced Rs 30,000-plus) the share is up from 52% to 56%. For white goods, the share has inched up from 35% to 40%, as per industry executives.Even for e-commerce, credit linked sales surged during September and October. Amazon India said equated monthly installment (EMI) adoption has surged 25% year-on-year (yoy) fueling big ticket purchases, accounting for one in four electronic sales. And 4 out of 5 of these were no-cost EMIs which grew 45% yoy.This growth comes at a time when latest Reserve Bank of India (RBI) data shows bank consumer durable loan till September grew by 8.6% year-on-year as compared with 9.8% a year back. For credit card outstanding, the growth was 18% in the same period as compared to 31% last year. This is due to tighter credit norms for unsecured loans after RBI last November raised risk weightage on banks' for personal loans and credit cards by 25 percentage points. Madan Sabnavis, chief economist at Bank of Baroda, said this surge in credit-backed consumption has been prevalent especially since Covid in India.“But there has been a check brought in by the RBI which raised the capital norms for such credit. The new norms basically increase the cost of such forms of credit which has slowed down growth. Hence in a way there has been moderation and a return to normal,” he said.Counterpoint’s research director Tarun Pathak said the surge in EMI is leading to an increase in average transaction value and consumers even in smaller towns are now using this transaction method.Brands are aggressively pushing no-cost EMI offers in the last two years to revive the lukewarm demand by absorbing the interest cost on such credit offered through credit cards and non-banking finance companies (NBFC). As per a latest PwC India report, India added more than 16 million credit cards in 2023-24 crossing the 100 million active cards milestone.With the addition of new cards, the industry has also seen 22% and 28% surge in transactional volume and value respectively driven by younger consumers and smaller towns, PwC said. Debit cards have seen a dip in both transaction volume and value owing to the shift in preferences by cardholders.Even NBFCs reported a surge in credit in October. Bajaj Finance managing director Rajeev Jain told analysts last month that after 8-9% growth in the first two quarters, there has been a 20-22% surge till about mid-October. NBFCs are also tightening their credit disbursal to control defaults.“Those clients who have more than three or more live unsecured loans are showing higher propensity to default and in general have lower downstream lower collection efficiencies. So, as we look at this data, we are continuing to tighten our underwriting norms for such cohorts of customers across all our products in an intelligent manner,” Jain said.
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