ANALYSIS Double Trouble: IT layoffs & loan slowdown – is there a storm brewing?

Known to be among the top contributors to consumer and discretionary spending, a slowdown in the pace of hiring or job losses in IT could have a ripple effect on three key retail segments for banks – credit cards, home loans, and personal loans.

For one, not only has there been a slowdown in the pace of credit card additions, but delinquencies are also increasing. A recent report by CRIF High Mark, a credit bureau, noted a 26 percent year-on-year (YoY) decline in new card issuances in FY25.

“Longer term delinquencies (PAR 90%+) surged to 15 percent, signaling a build-up of repayment pressure among overdue accounts,” the report noted. PAR 90%+ stands for portfolio at risk, for accounts that are overdue for 90 days or more. What this means is that the ability of credit card holders to repay their dues is weakening.

Interestingly, the waterfall mechanism of delinquencies starts with credit cards and if it percolates to home loans, the stress in retail banking is considered alarming. Luckily, we haven’t reached that stage yet. But can we afford to ignore the alarm bells?

Not really.

Other loans

A report by Transunion Cibil, India’s largest credit scorekeeper, flagged a mere eight percent YoY growth in credit active consumers in FY25, with origination volumes (number of new loan issuances) declining across retail categories, including home loans, personal loans, and credit cards.

CRIF’s report indicated that while delinquencies have remained stable overall , the 90-day+ PAR for home loans less than Rs 5 lakh (classified as affordable housing) has risen to 1.95 percent in FY25 from 1.62 percent in FY24.

Likewise, for personal loans, early-stage delinquencies increased across categories, except for private banks, though growth in the segment has picked up from FY24 levels. “Very selective lending is seen in personal loans across all ticket sizes,” said the retail head of a private bank, adding that it’s too soon to say if this segment is in a comfortable spot as far as growth and asset quality are concerned. “The sentiment is better in higher ticket sizes, but much will depend on job stability in the private sector,” he cautioned.

Growth on tricky terrain

Bankers say they are in a Catch-22 situation as far as retail loans are concerned. “If we don’t grow enough it will reflect on asset quality, but are the conditions for growth conducive? Not really,” said the CEO of a mid-sized private bank.

Senior industry officials add that the banking sector no longer has the upper hand in pricing retail loans, like it did between 2018-2021.

“Banks are keen to pick up high-quality retail loans, but this segment has become a price dictator from being a price acceptor until three years ago,” said the CEO cited earlier. “Mid-to-senior level IT employees is a prime catchment area for retail assets and amid job losses, growth might get trickier,” he added.

The CEO of a large PSU bank, which mostly has exposure to government employees but has recently started scaling up its private sector salaried borrower pool, said the bank will closely monitor incoming data. “We cannot afford growth at any cost,” he affirmed.

He also pointed out that biggies such as Google and Microsoft handing out pink slips is already impacting NRI-dependent businesses. “We have started seeing a slowdown in mid to high-value mortgages,” the banker added. If Indian tech companies are to follow their global peers, the cloud of uncertainty around retail lending is likely to intensify in the coming months.

For now, the question in the banking fraternity is whether Diwali 2025 will be better than the last two years, especially in the urban areas. “That will set the base for retail crystal gazing,'' he added.