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Stress in the consumer lending business, which was once a cash cow for banks and non-banking financial services, only seems to be intensifying, as statements and updates by these lenders suggest. A critical highlight in RBL Bank’s media statement regarding its business updates pertains to its credit card segment. “Acquisitions have stopped during the lockdown; only digitally sourced cards being booked,” said the private bank.
It added that credit card spends had declined 40 per cent during the lockdown, with the bank expecting a slight increase in credit cost in March. In a call hosted by UBS, HDFC Bank also said that card swipes had reduced in March.
All these point to the brewing stress in the consumer business (credit cards and personal loans, mainly unsecured) of banks and lenders. Bajaj Finance’s weak commentary added fuel to the fire, thus crushing hopes of a demand revival in the near term.
Analysts at UBS expect retail loan growth and collections to be hit due to social distancing and lower discretionary spend. “Banks exposed to the above will be hit the worst,” the brokerage adds.
While consumer finance is the mainstay of Bajaj Finance and Capital First (now IDFC First Bank), banks were late to the party.
Increasing weakness in traditional retail lending pockets, such as home loans and vehicle loans, prompted banks to diversify into consumer loans.
Among banks, HDFC Bank leads the segment, closely followed by ICICI Bank and Axis Bank. RBL Bank, too – with its tie-up with Bajaj Finance for credit cards – was steadily capturing the segment.
Rising income levels of consumers and their aspirational needs was the premise for lenders to ramp up this business. In addition, as lenders were targeting their existing customers, it didn’t matter if these were unsecured loans.