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Consumption Credit Shows Signs of Revival
India's consumption credit market is demonstrating an early recovery in the first half of the financial year 2026 (FY26). A recent thematic report by JM Financial Institutional Securities indicates that disbursement growth has improved across most loan segments linked to consumption. This reversal follows a period of weakness observed throughout FY25, offering a positive outlook if these trends persist into FY27.
Credit Card Growth Defies Recovery Trend
Despite the broader market recovery, credit card issuance and growth have emerged as a significant outlier. New credit card additions saw a sharp decline of 28% year-on-year in the September quarter of FY26. Consequently, the overall growth in cards in circulation moderated to a modest 6%, down from 7% recorded in the previous financial year. This slowdown is attributed to a more cautious stance adopted by lenders concerning unsecured retail credit products.
Private sector banks continue to hold a dominant position in the credit card segment, accounting for nearly 78% of all new card issuances during the quarter. Notably, HDFC Bank and SBI Cards managed to increase their spending market share in FY26 year-to-date compared to FY25. However, asset quality indicators for credit cards presented mixed signals. While early-stage delinquencies, measured by PAR 1-30 (loans overdue by 1-30 days), showed a sequential improvement, stress within the PAR 31-90 bucket (loans overdue by 31-90 days) increased for private banks, indicating persistent risks among a portion of the unsecured borrower base.
Personal Loans and Consumer Durables Rebound Strongly
In stark contrast to credit cards, personal loans have experienced a robust recovery. Disbursements surged by 23% year-on-year in the first half of FY26 and saw an even more impressive jump of 35% in the September quarter. Public sector banks were at the forefront of this rebound, bolstered by a significant increase in average loan ticket sizes. Asset quality also showed improvement across various lenders and borrower categories.
Consumer durable loans also witnessed a rebound, with disbursements growing by 12% in the first half and 19% in the September quarter. Private banks successfully regained market share in this segment. However, the asset quality landscape for consumer durable loans remained mixed, showing an increase in longer-term delinquencies despite improvements in early delinquency buckets.
Public Sector Banks Gain Ground in Secured Lending
The report also highlighted a consistent shift in market share towards public sector banks (PSBs) within the secured lending domains. Home loan disbursements rose by 11% in the first half of FY26, with PSBs originating half of the total value. This growth was primarily driven by higher-ticket loans, reflecting the impact of rising residential property prices. Smaller ticket segments in home loans, however, exhibited early signs of stress.
Auto loans and two-wheeler loans also recorded modest improvements in disbursement growth. Nonetheless, asset quality in auto loans weakened, particularly impacting Non-Banking Financial Companies (NBFCs) and loans with lower ticket sizes.
Lenders Adopt Cautious Approach Towards New Borrowers
A significant trend observed is the broad-based decline in the market share of new-to-credit (NTC) borrowers across various segments, most prominently in personal loans, two-wheeler, and consumer durable loans. This suggests that lenders are increasingly prioritizing established borrowers amidst growing concerns about the quality of unsecured credit. Early delinquencies have largely stabilized or improved across most segments, with the exception of auto loans influenced by NBFCs, underscoring the ongoing cautious underwriting practices in the market.
Impact
This news has a significant impact on the Indian stock market, particularly the financial services sector, including banks and NBFCs. The cautious approach towards unsecured lending, especially credit cards, might affect the profitability and growth rates of institutions heavily reliant on these products. Conversely, the recovery in personal loans and secured segments could benefit other players. Investors should closely monitor asset quality trends and shifts in market share among different lender types. The preference for seasoned borrowers over new-to-credit customers could also influence market dynamics. Overall, the financial landscape indicates a sector navigating risks while capitalizing on specific growth areas.
Impact Rating: 8/10
Difficult Terms Explained
FY26: Financial Year 2025-2026, running from April 1, 2025, to March 31, 2026.
YoY: Year-on-Year, a comparison of data from the current period to the same period in the previous year.
PAR 1-30: Portfolio Asset Ratio for 1-30 days, indicating loans that are overdue by 1 to 30 days.
PAR 31-90: Portfolio Asset Ratio for 31-90 days, indicating loans that are overdue by 31 to 90 days.
NBFC: Non-Banking Financial Company, a financial institution that provides banking-like services but does not hold a banking license.
HFC: Housing Finance Company, a type of NBFC that specializes in providing finance for housing.
NTC: New-to-Credit, referring to borrowers who have little or no prior credit history.
Delinquencies: Failures to make required payments on a loan or debt obligation.
Disbursement: The act of paying out money for a loan.
Market share: The portion of a market controlled by a particular company or product.
Asset quality: Refers to the credit risk associated with a company's assets, particularly loans.
Unsecured retail credit: Loans provided to individuals that are not backed by any collateral or asset.