Asset quality for unsecured lending products is likely to be impacted more severely

Asset quality for unsecured lending products is likely to be impacted more severely

 

Although TransUnion CIBIL’s research shows that delinquency rates have remained largely steady in the last two years with the exceptions of LAP, the likely impact of COVID-19 on asset quality in the coming months is a complex picture dependent on a number of interlocking factors – and as with the demand and supply of credit, varies by product category.

Shifts in asset quality during the crisis can be forecasted by analyzing:

·       Consumer credit scores –shifts in borrower risk tiers across product portfolios and delinquency rates associated with each tier

·       Collection roll rates– the number of accounts becoming newly delinquent and flowing into subsequent delinquency buckets

·       Payment hierarchy– the order in which consumers prioritise payments during times of financial hardship

The inability of some consumers to pay their debts post the moratorium period ending is likely to adversely impact their scores, and consequently the default probability may see a rise. Adherence to social distancing norms and limited field travel may impact overall lender collection efficiency, resulting in an increase in roll rates across various buckets. By simulating these risk factors related to score tier movements, it was possible to model delinquency rates associated with score tiers and collection flow rates for delinquency buckets to gauge the impact on asset quality.  

Based on a historical analysis of consumer payment hierarchy, the TransUnion CIBIL research observed that when facing financial distress, consumers pay mortgages first, then personal loans, and cards are the last product to be prioritized in terms of payment obligations relative to those other products.

Awider analysis of the risk outlook for the Indian retail credit market predicts that asset quality will likely be impacted most for personal loans and credit cards, with home loans and auto loans experiencing less of a shift.

More informed lending decisions can help consumers and lenders alike 

“Whether it’s their health, financial well-being or changes in day-to-day living, the lives of millions of people in India have already been dramatically affected by COVID-19.It is important that businesses and consumers are able to continue to transact with confidence, and we are doing everything in our power to help facilitate the provision of lending and commerce during these uncertain times,” tells Abhay Kelkar,vice president of research and consulting for TransUnion CIBIL. 

“Although each lender will have their own risk appetite and lending strategy, having an informed picture of what to expect as risks to their existing portfolio, and understanding the holistic risk of new customers they onboard, is essential to ensuring the ongoing availability of much needed credit in the economy. We know that lenders want to support consumers during these difficult times, and having the confidence to do so comes from timely, accurate and trended data, and driving deeper insights that are actionable.”

About the TransUnion CIBILretail credit outlook

TransUnion CIBIL’s retail credit outlook looks at various macroeconomic variables including GDP and its components, inflation, industrial production, the housing market, unemployment, labor participation rates, household financial liabilities, money supply and wider historic trends to develop an informed opinion on the likely trajectory of demand, supply and asset quality in the retail credit market. 

The outlook does not predict a final outcome, rather the trends and the drivers influencing the market. 

About TransUnion CIBIL

India’s pioneer information and insights company, TransUnion CIBIL makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. 

As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.^® TransUnion CIBIL provides solutions that help create economic opportunity, great experiences and personal empowerment for millions of people in India. 

We serve the financial sector as well as MSMEs, corporate and individual consumers. Our customers in India include banks, financial institutions, NBFCs, housing finance companies, microfinance companies and insurance firms.

For more information visit: www.transunioncibil.com

 

For further information contact:

 

Rahul Joshi

Rahul.joshi@adfactorspr.com

9619583385

 

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