The credit market in India plays an important role in meeting the financial needs of various segments of the economy. With RBI being the major regulator, participants in the credit market work either as lenders or borrowers of debt.
Lending institutions in India range from well-developed and large-sized Commercial Banks to Development Finance Institutions (DFIs) to localized tiny Co-operatives. They provide credit facilities in the form of short-term working loans to corporates, medium-term and long-term loans for financing large infrastructure projects, and retail loans for various purposes.
The data regarding credit market in India is provided by the RBI in its monthly Sectoral Credit Deployment Report which is based on the inputs from 41 scheduled commercial banks, accounting for more than 90% of the business. This report classifies the credit market in five major segments, namely- agriculture, industry, services, priority sector and retail credit.
Over the last few years, there has been a remarkable growth in retail credit with a CAGR of over 17%. Rising disposable incomes, increasing consumerism, changing lifestyles and penetration of e-commerce are the major factors impacting this growth.
An interesting fact to be noted- is the shift towards unsecured lending with smaller ticket-size finance available for various needs like consumer durables, online purchases, travel and tourism etc. Compared to 2015 when the retail credit mix between secured & unsecured loans stood at 71%:29%, F.Y. 2018-19 presents a different scenario, with unsecured retail credit market share increased to 32%.
With a CAGR of more than 20%, unsecured lending market has expanded much faster. Credit Cards, Personal Loans and Consumer Durables are emerging as the fastest growing credit products in India since they are availed to meet finance needs for weddings, shopping, travel etc.
Challenges in Retail Banking
While retail banking offers phenomenal opportunities for growth, the challenges are equally daunting:
– Less than 25% of the Indian population having credit scores
– High cost of sales and service acting as a barrier for financial inclusion
– Upgradation of systems and banking processes required to drive penetration among underserved segments
– Rising NPAs affecting the industry outlook
– Credit products suffering from limited innovation
The growth of the banking industry in the coming years would depend on the capacity-building by the banks to overcome the challenges and make use of the opportunities profitably. And, the choice of technology used coupled with the efficiency of operations would provide much-needed competitive edge for success in retail banking business. With India moving towards digitization, this is a big opportunity for finance and technology to join hands and ride on the growth wave.