Demand for two-wheeler, consumer durable loans experience largest initial impact from demonetization: TransUnion CIBIL

At the same time, demand for other consumer loan types, including credit cards and auto loans, have crept up through Dec 2016, after a sharp decline that was the immediate response to the announcement.

The analysis looked at the impact of demonetization on credit demand for the period of Nov-Dec, 2016.

Following unprecedented consumer credit growth over the past four years, including loans for vehicles and homes, credit cards and other unsecured credit products, the announcement on demonetization created short-term disruption in the demand for consumer credit.

However, the impact has not been uniform across lenders, geographies or loan types; data as recent as December 2016 show a recovery across both the demand and supply side for retail loans.

TransUnion CIBIL has analysed the changes in demand for credit (measured by the number of individuals applying for credit) and is partnering with lenders to design strategies to help drive growth and credit penetration.

Prior to Nov 8, credit demand was growing at an average 35% on an annual basis across all loan products, with significant year-over-year growth in demand for consumer loans (up 71%) and credit cards (up 41%). This growth was seen broadly across the spectrum of lenders.

These growth rate were broad-based across all geographies and were accompanied by historically low non-performing asset (NPA) rates as banks instituted strong, data-driven risk management practices.

“In the week after the demonetization announcement, TransUnion CIBIL saw a significant decrease in new credit demand, with the focus for both consumers and bankers being cash exchange and collections,” said Amrita Mitra, Vice President- financial services research and consulting at TransUnion CIBIL. 

“Two-wheeler and consumer durable loans, usually serviced by Private Banks and NBFCs, were most negatively impacted—significantly in key geographies like Maharashtra, Gujarat, Andhra Pradesh & West Bengal,” Mitra added.