India’s retail credit growth will be driven mainly by housing loans, credit per borrower to rise: Bernstein

NEW DELHI: The next phase of India’s retail credit growth is expected to come from a rise in credit per borrower, mainly driven by the housing loan segment, according to a report by Bernstein. A major part of this growth is expected to come from the affordable housing segment.

The report highlighted that mortgages are set to become the key driver of retail credit growth in the country. It stated, “We expect the next leg of growth to come from rising credit per borrower, led by mortgages”.

Affordable mortgages, with a ticket size that offers around 3 per cent Return on Assets (RoA), represent a $500 billion lending opportunity. The key factor for success in this area will be lenders’ ability to scale and replicate their operating models consistently across multiple states in India.

Over the past decade, the biggest value creation stories in the credit sector were based on expanding access to formal financing. During this period, more than 200 million new consumers were added to the credit system, with the number of borrowers growing faster than the total loan volume.

the report highlighted that now, with around 60 per cent of the Indian labour force having access to credit, the next leg of growth to be powered by an increase in the amount of credit each borrower takes, particularly in the form of mortgages. A mortgage is a loan taken to buy a house or property, where the borrower repays the amount in instalments and the property acts as security for the loan.

The report pointed out that mortgage penetration in India is still low at around 11 per cent of GDP. This is far behind China, where it stands at about 30 per cent, and significantly lower compared to developed markets, where mortgage penetration exceeds 50 per cent.

On the other hand, non-mortgage retail credit in India already accounts for more than 30 per cent of GDP, which is higher than in many emerging and developed markets. The report estimates that a steady rise in mortgage penetration over the coming years could create a $1.5 trillion mortgage opportunity in India by FY35. (ANI)