Leading credit information company TransUnion CIBIL, in an exclusive conversation with Moneycontrol, said there is a need to more frequently update borrowers' credit records to ensure better underwriting and deepen credit penetration.
Bhavesh Jain, the MD and CEO of TransUnion CIBIL sounded confident that the stress in retail loans segment may be petering and only the credit cards portfolio has seen a rise in delinquencies.
Edited excerpts:
There is a sense of relief among most lenders that the phase of stressed retail cycle that is coming to an end. Do you concur with this? Portfolio delinquencies have improved on most of the retail lending products. If we should break it into secured and unsecured, then on the secured front, the portfolio delinquencies have improved across home loan, auto loan, and all other vehicle loans. On the unsecured side, personal loan delinquencies are stable on a year-to-year basis. It is only credit card where delinquencies have inched up by 30 basis point year to year. Therefore, when we look at in totality, the retail lending portfolio qualities actually improved with an outlier of credit cards, and credit card delinquencies have increased. Card issuances have reduced in recent times, leading to a slight spike in delinquency.
The concern about asset quality performance of credit cards is quite high. In India, should we be equally cautious? First is that credit card penetration in India as compared to most of the developed nations is pretty low. Second, the total credit card exposure in India is significantly low as compared to the total credit market in India itself. Third is that the year-on-year balances on credit cards have gone up. In fact, it is almost 20 percent plus year-on-year, which means the consumers are getting comfortable to use credit card for their spends. Balances have gone up but the new card issuances have not kept pace by the same percentage. Hence, it will not lead to a big challenge for India.
Recently, RBI came up with a circular to say that if a customer is defaulting on one product, all the exposure should be classified as NPA. Do you see defaults getting a little higher than present levels as an outcome of this norm?Delinquencies have only inched on the credit card portfolio. When it comes to payment hierarchy, the first products to be put are home and car loans. Considering the current data points, we don’t see unsecured delinquency transmit to secured loans as at a structural level secured (loans) delinquencies have come down.
However, if we have a set of borrowers or consumer segment which might have a higher proportion of unsecured with a smaller proportion of secured loans - and might go through a big macroeconomic shift or an impact - they might be prone to risk. But, at a pan-India aggregate data level, secured portfolio delinquencies have improved, personal loan is stable, while only credit cards (delinquencies) have inched up.
It is important to make sure that we use the right data and analytics to understand the consumer's honest offer exposure and the consumer's ability to repay.
How frequently banks touch base with the consumer and how aware is the consumer in saying that one needs to pay on all credit products and not just on say home loans is needed to ensure that unsecured delinquency do not transmit to secure delinquency.
When we interact with banks, regulator and people in the credit ecosystem, they give the feedback that the ongoing retail credit cycle might have been more stressful if CICs (credit information companies) were not as active as they are now. Do you see this as an ultimate validation for your existence? Credit growth has been quite significant in the last 20-25 years and the portfolio qualities are stable. This has been possible because of credit Infrastructure, credit scores, availability of information and objective underwriting. There is an understanding both on the lender side and consumers. Yes, Credit Information Company (CICs) have played a role in making objective underwriting possible.
We moved from a monthly reporting to a fortnightly reporting. How have banks responded to this? The change will have to go through its process improvements, technology improvements, but at TransUnion CIBIL will see this circular of fortnightly reporting as very progressive and a step forward to further strengthening the credit ecosystem in the country.
From CIC's point of view, it might involve technology enhancements to submit at a higher frequency, but it would help the entire ecosystem to take the right decision. From the consumers’ lens, if one has made a payment or foreclosed a loan, or made any update on their credit file that is reported to CICs at a higher frequency.
The move is beneficial to the entire system. As an organization, we feel the way forward is to move from fortnightly submission to weekly submission to daily data submission.
You are expecting cooperation from banks for this? Yes, it helps the lender, consumer and the credit information are known on a near real-time basis. At the same time, it will require technological investment. That said, when you look at the benefits, I think it is the right thing and a progressive step we can take because it is a win-win for everybody. As we want to grow our credit ecosystem, this is important and critical.
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