In the December 2024 quarter, home loans saw a noticeable decline, with volumes dropping by 9% and loan values falling by 3%, according to a report by TransUnion CIBIL, a leading credit information company. This decline raises concerns about the state of the home loan market and the overall credit environment in India.
Drop in Personal Loan and Credit Card Volumes
The report also highlighted a slowdown in other key lending areas, including personal loans and credit cards. These are considered riskier types of loans due to their unsecured nature, meaning they are not backed by collateral. The Reserve Bank of India (RBI) has been cautioning banks to be more careful with unsecured loans over the past few quarters to prevent the buildup of risky debts.
Why Home Loans Are Crucial
Unlike personal loans, home loans play a significant role in boosting the economy. When people buy property, it triggers a chain reaction that benefits other sectors, such as construction, home decor, and real estate. Home loans also drive credit growth for banks, making them a key focus area in lending strategies.
Slower Growth in Outstanding Home Loan Balances
While home loans remain a priority, the report noted that the growth rate in outstanding home loan balances slowed to 13% in the December 2024 quarter, compared to 15% in the same period a year ago. This slowdown happened despite an improvement in repayment performance. The number of home loans overdue by more than 90 days fell slightly, with the unpaid loan rate improving from 0.96% to 0.8%.
Weaker Credit Demand and Slower Growth
The demand for loans also grew at the slowest pace in two years during the October-December 2024 period. This slowdown was particularly noticeable among new-to-credit (NTC) borrowers—people applying for loans for the first time—and prime consumers, who typically have good credit scores.
Urban vs. Rural Credit Trends
From a geographical perspective, credit inquiries (loan applications) decreased in metro cities but increased in semi-urban and rural areas. This suggests that while urban borrowers are slowing down their borrowing, rural consumers are showing more interest in credit products.
Decline in New-to-Credit Borrowers
One of the report’s key findings was a decrease in new-to-credit borrowers. The share of NTC borrowers in total loan originations dropped to 17% in December 2024 from 21% in December 2023. This decline affected multiple loan types, including home loans, credit cards, and personal loans.
Who Are New-to-Credit Borrowers?
According to the report, 41% of NTC borrowers are from Gen Z—those born after 1995. Many of these first-time borrowers are turning to consumption-based loans, such as credit cards, personal loans, and loans for buying consumer goods.
Why Are Fewer NTC Borrowers Taking Loans?
Bhavesh Jain, Managing Director and CEO of TransUnion CIBIL, explained that lenders are being more cautious due to the risks involved in unsecured loans. As a result, their strategies to balance risk and reward have led to fewer loans being approved for first-time borrowers.
Slowing Growth in Credit-Active Consumers
Over the past four quarters, credit supply has moderated, causing the growth in credit-active consumers (people with loans or credit products) to slow down. In December 2024, the number of credit-active consumers grew by just 9%, compared to 16% growth in the previous year.
Conclusion
The report by TransUnion CIBIL paints a mixed picture of India’s credit market. While home loans and credit demand are slowing down, rural and semi-urban areas are showing resilience. The decline in new-to-credit borrowers reflects the cautious approach of lenders, who are focusing on minimizing risk while adjusting to economic changes.
