Consumer Lending in India

COVID-19 impact on consumer lending

Due to the impact of COVID, both gross lending and outstanding balance are expected to witness a sharp dip in growth in 2020. During the lockdown months of April and May, sales of non-essential items were not allowed by the government, while non-essential stores were not allowed to open.

COVID-19 country impact

India’s lockdown came into effect from 25 March 2020. All forms of movement were restricted for consumers apart from those classified as essential workers, including medical workers, the police and grocery shop owners.

Interest rates drop for mortgages/housing as RBI cuts repo rate

The Reserve Bank of India (RBI) announced a cut in the repo rate in May 2020 to help stimulate the economy. With most banks having linked their interest rates for priority sector loans to the repo rate this benefit will be passed onto the consumer.

Lenders offer COVID-19 personal loans with low interest rates

The measures taken to control COVID-19 have put household incomes under pressure, with many consumers suffering from financial issues due to issues such as deferred salary payments, temporary closure of businesses during the lockdown and a drop in consumer spending. In response, banks and non-banking financial companies (NBFCs) introduced so-called COVID-19 personal loans.

Consumers increasingly seek out alternative forms of financing

While banks dominate consumer lending in India, NBFCs are increasing their presence in the country through areas such as auto lending and durables lending. Indeed, NBFCs and other alternative finance providers continued to witness significant growth in 2020, despite the challenges posed by COVID-19.

What next for consumer lending?

Interest rates are expected to continue falling in India in the early part of the forecast period which should help to stimulate demand for consumer lending as borrowing becomes more affordable. Furthermore, real estate prices are expected to fall which could help to stimulate the market as homes become more affordable.

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