India Banks

Unsecured lending and its promise of structural growth

Banks | Thematic Report | October 16, 2023

Financial system PLs
Structural growth in unsecured personal loans is being fueled by three trends:
(Rs tn) 25.3 (1) growing customer comfort with borrowing for personal consumption, (2) easy
access to small-ticket loans led by the digitization of loan sourcing, and (3) credit
underwriting helped by alternate sources. We expect ~20% CAGR in personal loans
over FY23-FY28E, totaling Rs 25 tn and accounting for ~8% chunk of system loans.
10.2
We note the differentiated strategies, as fintechs/select NBFCs cater to smaller ticket
5.4 sizes and new geographies, while banks focus on larger-ticket loans for existing
customers. Asset quality remains healthy, and any potential increase in credit costs or
risk weights would be manageable. We see large banks best placed to reap this
Mar-20 Mar-23E Mar-28E
Source: CRIF Highmark, Axis Capital; FY23E/28E data
opportunity given their customer ownership and extensive investment in digital.
is based on Axis Capital estimates

Banks extending large ticket loans, fintechs into smaller sizes

3-year CAGR in PL across banks
In the unsecured personal loan (PL) space, banks are focused on large ticket sizes and
PSU Private System existing liabilities customers, while fintechs (in partnership with NBFCs) extend smaller-
24% ticket loans to younger/new-to-credit customers (PL accounts for ~70% of fintech
22%
20% disbursements). The preference for PL products is rising among mass-market consumers
and fintechs have a ~49% share of this market in value terms. For banks, growth in PL
(~22% CAGR last three years) is led by a rapid increase in the number of loans (~13%
9% 7% 8%
CAGR) vis-à-vis ticket size inflation (~8% CAGR).

Delinquencies remain low, any rise in credit costs manageable for large banks
Amount o/s Ticket size For banks, the combined share of SMA-1 & 2 loans in unsecured retail has declined from
Source: RBI, Axis Capital 4.2% in Mar’21 to 2.3% in Mar’23. Within mass-markets, delinquency trends (30-90 dpd
and 90-180 dpd) are stable, indicating healthy customer repayment behavior and
SMA trends for unsecured retail (Mar’23) manageable leverage. Banks under our coverage give between 55-100% of PL to existing
SMA-0 SMA-1 SMA-2 Total liabilities customers. And as we saw in the aftermath of Covid, asset quality impact on
PSU 6.8% 2.4% 0.7% 9.8%
Private 2.9% 0.8% 0.3% 4.0%
larger banks was much lower than that for some of the smaller banks.
FBs 1.9% 1.5% 0.6% 4.0%
System 4.6% 1.7% 0.6% 6.9% Growth can remain strong even with higher risk weights
Source: RBI, Axis Capital The RBI has said that it is closely monitoring certain components of retail loans for signs
of incipient stress. It has also advised lenders to strengthen their internal surveillance
mechanisms, address any build-up of risks, and institute suitable safeguards. The RBI had
reduced risk weights on unsecured PL to 100% from 125% in Sep’19, while credit cards
continue to carry 125% risk weight. If the RBI were to raise the risk weight back to 125%,
CET1 for banks under our coverage would decline by ~5-40 bps. If asset quality holds up
well and risk adjusted returns are favorable, an increase in risk weights alone may not
lead to any significant slowdown in the growth of unsecured PL.

Large banks better placed for opportunity

Large banks have strong customer ownership, growing digital capabilities (use of AI/ML,
digital scorecards), better insights into customer cashflows and self-funding via deposit
balances. Banks also have well-established and tested recovery machinery in place,
whereas the recovery mechanisms of fintechs are not yet tested. Large banks have been
originating most of their PLs by cross-selling to existing-liability customers. We expect
the PL mix to increase for KMB, SBI, and BoB; while Paytm will likely benefit as a leading
distributor of BNPL and PL. We have raised our net profit estimates for these companies
Manish Shukla by 3-5% and raised TPs by 2-13% as we roll forward to Sep’25 ( see Exhibits 97 and 98).
manish.shukla@axiscap.in
Chirag Gandhi, CFA
chirag.gandhi@axiscap.in
Mitesh Gohil
mitesh.gohil@axiscap.in

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, REFER TO THE END OF THIS MATERIAL 1
 Banks
Thematic Report

Table of Contents

Story in charts ........................................................................................................................................... 3

Unsecured personal loan growth to remain strong ....................................................................7

PL growth driven by increase in business volume .................................................................... 15

Fintechs driving faster growth in small-ticket PLs ................................................................... 19

Asset quality holding up well for unsecured retail loans ....................................................... 25

Low credit penetration, superior tech offerings to drive growth ....................................... 29

Case study: Unsecured consumer credit market in the US .................................................. 32

Larger banks are best placed beneficiaries ................................................................................. 38

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Story in charts

Exhibit 1: Financial system PLs to reach ~Rs 25 tn by FY28E Exhibit 2: PL market share trends
30 PSU banks Private banks
25.3
25 NBFCs (incl. fintechs) Others
100%
20 15% 17% 17% 21%
80%
15
(Rs tn)

10.2 60% 38% 38% 37%

10 7.9 35%
6.5
5.4
5 40%

0 20% 43% 42% 42% 40%

Mar-20

Mar-22
Mar-21

Mar-23E

Mar-28E

0%
Mar-21 Mar-22 Mar-23E Mar-28E
Source: CRIF Highmark, Axis Capital; FY23E/28E data is based on Axis Capital Source: CRIF Highmark, Axis Capital; NBFCs includes fintechs and FY23E/28E data
estimates is based on Axis Capital estimates

Exhibit 3: Total PLs are expected to see 20% CAGR over FY23-28E
CAGR CAGR
(Rs bn) Mar-20 Mar-21 Mar-22 Mar-23E Mar-24E Mar-25E Mar-26E Mar-27E Mar-28E
FY20-23E FY23-28E
Total Personal Loans 5,364 6,474 7,924 10,220 12,783 15,627 18,517 21,734 25,308 24.0% 19.9%
Banks 4,463 5,257 6,339 8,101 10,132 12,231 14,307 16,575 19,048 22.0% 18.6%
NBFCs (including fintechs) 901 1,217 1,585 2,119 2,651 3,397 4,210 5,159 6,260 33.0% 24.2%
% YoY growth
Total personal loans 31% 21% 22% 29% 25% 22% 18% 17% 16%
Banks 28% 18% 21% 28% 25% 21% 17% 16% 15%
NBFCs (including fintechs) 49% 35% 30% 34% 25% 28% 24% 23% 21%
Lender group-wise system personal loan share
Banks 83% 81% 80% 79% 79% 78% 77% 76% 75%
NBFCs (including fintechs) 17% 19% 20% 21% 21% 22% 23% 24% 25%
% share in total system credit
Total personal loans 4.2% 4.7% 5.2% 5.9% 6.5% 7.1% 7.4% 7.7% 8.0%
Banks 3.5% 3.8% 4.1% 4.7% 5.2% 5.5% 5.7% 5.9% 6.0%
NBFCs (including fintechs) 0.7% 0.9% 1.0% 1.2% 1.4% 1.5% 1.7% 1.8% 2.0%
% share in system retail credit
Total personal loans 12.6% 13.9% 15.4% 16.8% 18.1% 19.1% 19.7% 20.1% 20.5%
Banks 10.5% 11.3% 12.3% 13.3% 14.3% 14.9% 15.2% 15.3% 15.4%
NBFCs (including fintechs) 2.1% 2.6% 3.1% 3.5% 3.8% 4.1% 4.5% 4.8% 5.1%
Source: CRIF Highmark, RBI, Axis Capital; FY23E to 28E data is based on Axis Capital estimates

Exhibit 4: System PL 5-year CAGR over FY23-28E under various scenarios

Growth in Active Loans
5-Yr CAGR FY23-28E 19.9% 10.5% 12.0% 13.5% 15.0% 16.5%
3.6% 15% 16% 18% 19% 21%
ticket size
Growth in

4.6% 16% 17% 19% 20% 22%

5.6% 17% 18% 20% 21% 23%
6.6% 18% 19% 21% 23% 24%
7.6% 19% 21% 22% 24% 25%
Source: Axis Capital

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Thematic Report

Exhibit 5: Lender-wise share of PL in total loans

FY20 Q1FY24
14%
11.5%
10.8%

12%
9.4%
7.9%^

9.0%

10%

7.5%
7.0%

8%

5.9%
5.8%

5.1%
4.4%
6%
4.0%
3.1%

4%

2.2%

2.1%

1.8%
1.5%

1.5%

1.4%

1.4%
1.2%
1.0%

0.6%
0.5%

0.4%
2%
0%
HDFCB SBIN ICICIBC Yes IIB KMB BOB PNB FB CBK Union BOI
Source: Company, Axis Capital; ^Share of personal loans in HDFCB proforma is at 7.9% of loans.

Exhibit 6: Estimated impact on CET-1 due to increase in risk weights for PLs
Q1FY24 Scenario-1 (PL Risk Weight at 125%) Scenario-2 (PL Risk Weight at 150%)
Share of CET-1 Existing Risk New Risk New CET- Change in New Risk New CET- Change in
(Rs mn)
Personal loans ratio weights on PL weights on PL 1 ratio CET-1 ratio weights on PL 1 ratio CET-1 ratio
Federal 1.5% 12.5% 100% 125% 12.5% -0.05% 150% 12.4% -0.11%
HDFCB (proforma) 7.9% 17.8% 100% 125% 17.5% -0.36% 150% 17.1% -0.71%
ICICI 9.0% 16.7% 100% 125% 16.3% -0.33% 150% 16.0% -0.66%
IDFCFB 12.3% 13.7% 100% 125% 13.3% -0.36% 150% 13.0% -0.69%
IIB 2.0% 16.4% 100% 125% 16.4% -0.07% 150% 16.3% -0.15%
Kotak 5.1% 20.9% 100% 125% 20.7% -0.22% 150% 20.5% -0.43%
BOB 2.3% 11.9% 100% 125% 11.8% -0.09% 150% 11.8% -0.18%
SBIN 9.6% 10.2% 100% 125% 9.9% -0.28% 150% 9.7% -0.54%
Source: RBI, Company, Axis Capital

Exhibit 7: 3-year CAGR across banks Exhibit 8: Lender-wise PL avg. ticket-size*

30% FY21 FY22
24%
25% 22% 450 420
20% 400
20% 350
14% 350 320
15% 13%
12% 300
9% 8%
(Rs '000)

10% 7% 250
200 180
5%
150
0%
100
PSU

PSU

PSU
Private

Private

Private
SCBs

SCBs

SCBs

50 30 20

0
Amount o/s No. of borrowers Ticket size PSU banks Private banks NBFCs
Source: RBI, Axis Capital; 3-Yr CAGR over Q1FY21 to Q1FY24 Source: CRIF Highmark, Axis Capital; *Based on loan origination

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Thematic Report

Exhibit 9: Banks PL: Interest rate-wise-mix (value terms) Exhibit 10: Banks PL: Interest rate-wise ticket size
<10% =>10% & <11% =>11% & <12% <10% =>10% & <11%
=>12% & <13% >=13% =>11% & <12% =>12% & <13%
>=13% Overall
100% 7,00,000
16% 16% 15% 13% 12% 12% 12% 12% 13% 14% (Rs)
8% 7% 7% 8% 9% 10% 6,00,000
80% 11% 10% 9% 11%
19% 15% 16% 18% 5,00,000
18% 19% 20% 20%
19% 19%
60% 4,00,000
29% 30%
22% 25% 27% 31%
40% 20% 31% 32% 31% 3,00,000
2,00,000
20% 33% 34% 34% 33% 36% 35% 32% 28% 25% 25% 1,00,000
0% 0

Jun-22
Jun-21

Jun-22

Jun-23

Jun-21

Jun-23
Mar-21

Dec-21

Mar-22

Dec-22

Mar-23

Mar-21

Dec-21

Mar-22

Dec-22

Mar-23
Sep-21

Sep-22

Sep-21

Sep-22
Source: RBI, Axis Capital Source: RBI, Axis Capital

Exhibit 11: Fintechs: PLs are ~72% of total loans Exhibit 12: Fintech PL age was mixed: <40 years dominate

Business Loan Consumer Loan Personal Loan Others <=25 Years 25-30 Years 30-40 Years >40 Years
100% 2% 5% 7% 100%
17% 18% 19%
80%
51% 80%

60% 65%
72% 60% 41% 42% 40%

40% 40%
41% 29% 27% 25%
20% 25% 20%
15%
13% 13% 16%
0% 6% 5% 6% 0%
FY21 FY22 FY23 FY21 FY22 FY23
Source: Equifax, Axis Capital; data represents Fintech loan value mix Source: Equifax, Axis Capital

Exhibit 13: Fintech PL ticket-size mix: Higher share of <Rs 5k Exhibit 14: Fintech PL has higher share of shorter tenure loans
0 - 5k 5k - 10k 10k - 50k < 6 months 6 - 12 months > 12 months
50k - 100k 100k - 200k 200k - 500k
500k and above 100%
14% 12%
100% 20%
2% 2% 2%
13% 19% 17% 80%
23%
80%
11% 29%
18% 60%
60% 41%
40% 88%
40%
68% 63%
60% 51%
20% 42% 20%

0% 0%
FY21 FY22 FY23 FY21 FY22 FY23
Source: Company, Axis Capital Source: Equifax, Axis Capital

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Exhibit 15: SMA share within retail loans (Mar’23) Exhibit 16: US: Delinquencies across buckets
SMA-0 SMA-1 SMA-2 Total
Unsecured Retail loans 6.0%
5.1%
PSUs 6.8% 2.4% 0.7% 9.8% 4.6% 4.4%
5.0%
Private 2.9% 0.8% 0.3% 4.0%
FBs 1.9% 1.5% 0.6% 4.0% 4.0% 3.0% 3.1% 3.4%
All SCBs 4.6% 1.7% 0.6% 6.9% 3.0% 2.2% 2.2% 2.3%
Secured Retail loans 3.4%
PSUs 5.4% 2.8% 1.0% 9.2% 2.0% 2.3%
Private 3.9% 1.1% 0.4% 5.4% 1.0% 1.7%
FBs 1.0% 0.5% 0.1% 1.5%
All SCBs 4.7% 2.0% 0.7% 7.4% 0.0%

2017
2017
2018
2019
2020
2021
2022

2017
2018
2019
2020
2021
2022

2018
2019
2020
2021
2022
Retail loans
PSUs 5.7% 2.7% 0.9% 9.4%
Private 3.6% 1.0% 0.4% 5.0% % of borrowers 90+ % of borrowers 60+ % of borrowers
FBs 1.4% 0.9% 0.3% 2.6% days past due days past due 30+ days past
All SCBs 4.7% 1.9% 0.7% 7.3% due
Source: TransUnion CIBIL, Axis Capital Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on
Q2CY22.

Exhibit 17: Unsecured PLs transition matrix

Risk tier as of Mar'23 Score tier Score tier
Subprime Near prime Prime Prime Plus Super Prime downgrade upgrade
Subprime 71.0% 18.3% 8.4% 2.0% 0.2% 0.0% 29.0%
Near prime 21.6% 32.1% 35.4% 10.2% 0.7% 21.6% 46.3%
Risk tier as of
Prime 8.8% 16.8% 47.7% 24.9% 1.8% 25.6% 26.7%
Mar'22
Prime plus 4.0% 9.5% 28.9% 52.1% 5.4% 42.5% 5.4%
Super prime 2.3% 7.9% 22.8% 27.6% 39.4% 60.6% 0.0%
Source: RBI, Axis Capital

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Thematic Report

Unsecured personal loan growth to remain strong

Many banks and NBFCs have pivoted towards retailization of their loan books over the past few
years, partly due to subdued growth and higher slippages in wholesale segments. Digital and
technology-led lending is driving the growth of retail credit, especially in the unsecured segment.
The revival in pent-up demand post Covid and rebound in service sector activities and consumer
spending are driving the strong demand for consumer credit.

Multiple enablers in place for sustained growth

Some of the factors driving growth of unsecured retail loans in India are low total consumer debt
to GDP (~36%) vs other countries, usage of new and alternate data in underwriting,
improvement in machine learning/data analytics capabilities, rising demand for small-ticket PLs,
and cross-sell of loans to existing customers. The financial system (banks + NBFCs/fintechs)
unsecured PLs saw a 24% CAGR over FY20-23 to Rs 10.2 tn vs. an 11% CAGR in overall credit.
Despite this, the share of unsecured PLs, at ~6% of total loans, remains low. In the absence of
any significant asset quality shocks, we expect unsecured PL growth to remain strong as well
going forward. We estimate financial system PLs to see a CAGR of ~20% over FY23-28E,
reaching ~Rs 25 tn by FY28E and taking its share to ~8% of total loans.

Exhibit 18: Financial system PL is expected to reach ~Rs 25 tn by FY28E

We expect the unsecured PL
30
market to reach ~Rs 25 tn by (Rs tn)
25.3
FY28E, implying an 20% 25
CAGR over FY23-28E
20

15
10.2
10 7.9
6.5
5.4
5

0
Mar-20 Mar-21 Mar-22 Mar-23E Mar-28E
Source: CRIF Highmark, Axis Capital; FY23E/28E data is based on Axis Capital estimates

Exhibit 19: Retail credit to GDP comparison across countries – India is lower than many of its peers
Emerging Markets All Economies Advanced Economies
Brazil China Indonesia
100% India Thailand South Africa

80%

60%

40%

20%

0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: BIS, Axis Capital

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Increasing employed population provides ample growth opportunity

We expect penetration of unsecured PLs to increase significantly over the next five years, driven
by (1) higher adoption of short-term credit, (2) effective use of alternate datasets to
underwriting new to credit/informal workforce, and (3) steady increase in ticket size as
propensity to spend increases. We have looked at the penetration of active PLs as a proportion
of the total employed population (calculated as labor force participation rate * working
population age group of 15-64 years). As of FY23E, active PL penetration is ~14%. We expect
the number of active PLs to increase to ~25% of the employed population by FY28E. This
translates to ~14% CAGR in number of active loans over FY23-28E compared to ~28% CAGR
over FY20-23E. We expect ticket size to increase at ~6% CAGR, translating to ~20% CAGR in
total PL. Consequently, we expect the share of PL in total system loans to increase from ~6% in
Mar ’23 to ~8% in Mar’28E.

Exhibit 20: India population-mix by age

(mn) FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E FY27E FY28E
Total Population 1,362 1,376 1,390 1,403 1,412 1,422 1,435 1,448 1,461 1,473 1,486
Age-wise mix (%)
0-14 27% 27% 26% 26% 25% 25% 25% 24% 24% 23% 23%
15-29 27% 27% 27% 27% 27% 26% 26% 26% 26% 26% 25%
30-44 22% 22% 22% 22% 22% 23% 23% 23% 23% 23% 23%
45-64 18% 18% 19% 19% 19% 19% 20% 20% 20% 20% 21%
64+ 6% 6% 6% 6% 7% 7% 7% 7% 7% 8% 8%
Source: World bank estimates, Axis Capital

Exhibit 21: PLs have a long growth runway – 20% CAGR over FY23-28E to Rs 25.3 tn
CAGR CAGR
Mar-20 Mar-21 Mar-22 Mar-23E Mar-24E Mar-25E Mar-26E Mar-27E Mar-28E FY20- FY23-
23E 28E
PL Portfolio Outstanding Rs bn 5,364 6,474 7,924 10,220 12,783 15,627 18,517 21,734 25,308 24% 20%
Active Loans mn 33.9 39.7 58.5 71.8 85.5 99.6 111.3 123.3 135.4 28% 14%
Average ticket size Rs 158,137 163,114 135,546 142,323 149,439 156,911 166,326 176,305 186,884 -3% 6%

YoY growth
PL Portfolio Outstanding % ∆ YoY 31.1% 20.7% 22.4% 29.0% 25.1% 22.3% 18.5% 17.4% 16.4%
Active Loans % ∆ YoY 61.4% 17.0% 47.3% 22.8% 19.1% 16.4% 11.8% 10.7% 9.9%
Average ticket size % ∆ YoY -18.8% 3.1% -16.9% 5.0% 5.0% 5.0% 6.0% 6.0% 6.0%

Personal Loan penetration (Active Loans)

Total employed population mn 478 489 496 502 509 516 523 529 535 2% 1%
Growth in employed population % ∆ YoY -1.0% 2.4% 1.3% 1.3% 1.4% 1.3% 1.3% 1.2% 1.2%
No. of active loans mn 34 40 58 72 86 100 111 123 135 28% 14%
Growth in active loans % ∆ YoY 61.4% 17.0% 47.3% 22.8% 19.1% 16.4% 11.8% 10.7% 9.9%
Active loans penetration % 7.1% 8.1% 11.8% 14.3% 16.8% 19.3% 21.3% 23.3% 25.3% 7.2% 11.0%
Change in active loans penetration bps 274 101 368 250 250 250 200 200 200
Source: CRIF Highmark, World bank, Axis Capital; FY23E to 28E data is based on Axis Capital estimates

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Exhibit 22: Total system retail credit is expected to see 15% CAGR over FY23-28E
CAGR CAGR
(Rs bn) Mar-20 Mar-21 Mar-22 Mar-23E Mar-24E Mar-25E Mar-26E Mar-27E Mar-28E
FY20-23E FY23-28E
Total System Retail Credit 42,662 46,466 51,402 60,872 70,628 81,996 94,110 108,043 123,304 12.6% 15.2%
Banks 27,269 30,090 33,870 40,852 48,205 56,882 65,983 76,540 88,021 14.4% 16.6%
NBFCs (including fintechs) 15,394 16,376 17,533 20,021 22,423 25,114 28,127 31,503 35,283 9.2% 12.0%
% YoY growth
Total Retail Credit 22% 9% 11% 18% 16.0% 16.1% 14.8% 14.8% 14.1%
Banks 18% 10% 13% 21% 18.0% 18.0% 16.0% 16.0% 15.0%
NBFCs (including fintechs) 28% 6% 7% 14% 12.0% 12.0% 12.0% 12.0% 12.0%
Lender group-wise system retail credit share
Banks 64% 65% 66% 67% 68% 69% 70% 71% 71%
NBFCs (including fintechs) 36% 35% 34% 33% 32% 31% 30% 29% 29%
% share in total system credit
Total Retail Credit 33.1% 33.9% 33.5% 35.0% 36.0% 37.1% 37.8% 38.5% 38.9%
Banks 21.2% 22.0% 22.1% 23.5% 24.6% 25.7% 26.5% 27.2% 27.8%
NBFCs (including fintechs) 11.9% 11.9% 11.4% 11.5% 11.4% 11.4% 11.3% 11.2% 11.1%
Source: RBI, Axis Capital

Exhibit 23: Total PLs are expected to see 20% CAGR over FY23-28E
CAGR CAGR
(Rs bn) Mar-20 Mar-21 Mar-22 Mar-23E Mar-24E Mar-25E Mar-26E Mar-27E Mar-28E
FY20-23E FY23-28E
Total Personal Loans 5,364 6,474 7,924 10,220 12,783 15,627 18,517 21,734 25,308 24.0% 19.9%
Banks 4,463 5,257 6,339 8,101 10,132 12,231 14,307 16,575 19,048 22.0% 18.6%
NBFCs (including fintechs) 901 1,217 1,585 2,119 2,651 3,397 4,210 5,159 6,260 33.0% 24.2%
% YoY growth
Total personal loans 31% 21% 22% 29% 25% 22% 18% 17% 16%
Banks 28% 18% 21% 28% 25% 21% 17% 16% 15%
NBFCs (including fintechs) 49% 35% 30% 34% 25% 28% 24% 23% 21%
Lender group-wise system personal loan share
Banks 83% 81% 80% 79% 79% 78% 77% 76% 75%
NBFCs (including fintechs) 17% 19% 20% 21% 21% 22% 23% 24% 25%
% share in total system credit
Total personal loans 4.2% 4.7% 5.2% 5.9% 6.5% 7.1% 7.4% 7.7% 8.0%
Banks 3.5% 3.8% 4.1% 4.7% 5.2% 5.5% 5.7% 5.9% 6.0%
NBFCs (including fintechs) 0.7% 0.9% 1.0% 1.2% 1.4% 1.5% 1.7% 1.8% 2.0%
% share in system retail credit
Total personal loans 12.6% 13.9% 15.4% 16.8% 18.1% 19.1% 19.7% 20.1% 20.5%
Banks 10.5% 11.3% 12.3% 13.3% 14.3% 14.9% 15.2% 15.3% 15.4%
NBFCs (including fintechs) 2.1% 2.6% 3.1% 3.5% 3.8% 4.1% 4.5% 4.8% 5.1%
Source: CRIF Highmark, RBI, Axis Capital

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Scenario analysis
 The system PL CAGR has been 24% over FY20-23E, within which active loans CAGR was
28%. During this period, the share of PL in total system loans has increased from ~4.2% in
FY20 to ~6% in FY23. At the same time, the share of PL in system retail loans has increased
from ~12.5% in FY20 to ~17% FY23.
 Base case: In our base case, we are factoring in ~20% CAGR in system PL over FY23-28E,
driven by ~14% CAGR growth in active loans and ticket size CAGR of 6%. We believe,
higher preference for smaller ticket sized loans will lead to only a moderate increase in
ticket size. In this case, the share of PL in system retail loan increases from ~17% in FY23 to
~21% in FY28E.
 Bull case: Faster growth in active loans (~17% CAGR) and ~8% CAGR in ticket size will lead
to ~25% CAGR in system PL in a bull case scenario. In this case, the share of PL in system
retail loan increases from ~17% in FY23 to ~26% in FY28E.
 Bear case: In a bear case, ~11% CAGR in active loans and ~4% CAGR in ticket size will lead
to 15% CAGR in system PL. In this case, the share of PL in system retail loan is expected to
remain largely stable at around 16-17%.

Exhibit 24: System PL book size under various scenarios

System PL loan growth is Growth in Active Loans
largely driven by faster (Rs bn) 25,308 10.5% 12.0% 13.5% 15.0% 16.5%
3.6% 20,118 21,520 23,000 24,560 26,204
growth in active loans vis-à-
ticket size
Growth in

4.6% 21,108 22,579 24,132 25,769 27,493

vis ticket size 5.6% 22,136 23,679 25,308 27,024 28,833
6.6% 23,204 24,822 26,529 28,328 30,224
7.6% 24,313 26,008 27,797 29,682 31,669
Source: Axis Capital

Exhibit 25: System PL 5-year CAGR over FY23-28E under various scenarios
Growth in Active Loans
5-Yr CAGR FY23-28E 19.9% 10.5% 12.0% 13.5% 15.0% 16.5%
3.6% 15% 16% 18% 19% 21%
ticket size
Growth in

4.6% 16% 17% 19% 20% 22%

5.6% 17% 18% 20% 21% 23%
6.6% 18% 19% 21% 23% 24%
7.6% 19% 21% 22% 24% 25%
Source: Axis Capital

Exhibit 26: Share of PL in total retail credit under different scenarios (FY28E)
Growth in Active Loans
20.5% 10.5% 12.0% 13.5% 15.0% 16.5%
3.6% 16.3% 17.5% 18.7% 19.9% 21.3%
ticket size
Growth in

4.6% 17.1% 18.3% 19.6% 20.9% 22.3%

5.6% 18.0% 19.2% 20.5% 21.9% 23.4%
6.6% 18.8% 20.1% 21.5% 23.0% 24.5%
7.6% 19.7% 21.1% 22.5% 24.1% 25.7%
Source: Axis Capital

October 16, 2023 10

 Banks
Thematic Report

Exhibit 27: PL market share trends by lender group

PSU banks Private banks NBFCs (incl. fintechs) Others
100%
15% 17% 17% 21%
80%

60% 38% 38% 37% 35%

40%

20% 43% 42% 42% 40%

0%
Mar-21 Mar-22 Mar-23E Mar-28E
Source: CRIF Highmark, Axis Capital; NBFCs includes fintechs

Exhibit 28: Lender-wise 3-year CAGR in PL segment

Most PSU banks have CAGR (FY20-23)

80% 75%
reported strong growth in
PLs over FY20-23, starting on 58%
60%
a lower base
40% 39%
40% 32% 29%
26% 25%
17% 17%
20% 14%
4%
0%
FB
Yes

SBIN

CBK
HDFCB
Union

KMB
ICICIBC
BOB

BOI

IIB
PNB

Source: Company, Axis Capital

Exhibit 29: Lender-wise share of PL in total loans

FY20 Q1FY24
14%
11.5%
10.8%

12%
9.4%
7.9%^

9.0%

10%
7.5%
7.0%

8%
5.9%
5.8%

5.1%
4.4%

6%
4.0%
3.1%

4%
2.2%

2.1%

1.8%
1.5%

1.5%

1.4%

1.4%
1.2%
1.0%

0.6%
0.5%

0.4%

2%
0%
HDFCB SBIN ICICIBC Yes IIB KMB BOB PNB FB CBK Union BOI

Source: Company, Axis Capital; ^Share of personal loans in HDFCB proforma is at 7.9% of loans.

October 16, 2023 11

 Banks
Thematic Report

Exhibit 30: SBI’s PL book saw ~29% CAGR over the past 3 years vs 22% CAGR for the banking system
(Rs bn) Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Jun-23 3-Yr CAGR
System
Non-food credit 85,944 95,489 100,440 110,167 127,177 133,671 12.5%
Personal loans^ 5,526 6,941 7,628 8,898 11,202 11,822 21.6%
% of non-food credit 6.4% 7.3% 7.6% 8.1% 8.8% 8.8%
SBI (Xpress credit) 1,049 1,412 1,928 2,477 3,040 3,108 28.6%
System personal loans (ex-SBI) 4,477 5,528 5,700 6,420 8,162 8,715 19.4%
% of non-food credit 5.2% 5.8% 5.7% 5.8% 6.4% 6.5%
Source: RBI, Company, Axis Capital; 3-year CAGR over Jun’20 to Jun’23, ^part of other retail loans as per RBI definition.

Exhibit 31: Share of PLs within banks and YoY growth trends
Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24
Personal loans (% mix)
Federal Bank 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.2% 1.2% 1.1% 1.1% 1.1% 1.3% 1.5%
HDFC Bank 11.0% 10.8% 10.6% 10.4% 10.4% 10.4% 10.5% 10.2% 10.5% 10.4% 10.8% 10.6% 10.8%
ICICI Bank 7.0% 6.8% 6.6% 6.7% 6.7% 6.9% 7.0% 7.3% 7.6% 7.9% 8.3% 8.6% 9.0%
Indusind Bank 1.4% 1.4% 1.4% 1.4% 1.3% 1.5% 1.5% 1.5% 1.6% 1.7% 1.8% 1.9% 2.0%
Kotak Bank 4.5% 4.0% 3.5% 3.1% 3.0% 3.1% 3.4% 3.7% 4.2% 4.5% 4.7% 4.9% 5.1%
Bank of Baroda 0.6% 0.6% 0.6% 0.6% 0.7% 0.8% 0.8% 1.2% 1.4% 1.8% 1.9% 2.0% 2.2%
State Bank of India 6.1% 6.7% 7.2% 7.6% 7.8% 8.3% 8.6% 8.8% 8.9% 9.0% 9.2% 9.3% 9.4%

Personal loans (YoY growth)

Federal Bank 67.0% 46.1% 32.1% 21.2% 13.9% 5.5% 2.1% -3.2% -2.2% 5.5% 12.1% 36.7% 62.2%
HDFC Bank 14.8% 10.9% 5.9% 3.2% 8.0% 11.7% 15.0% 17.5% 22.8% 22.5% 23.4% 22.5% 19.5%
ICICI Bank 27.7% 17.8% 10.4% 9.0% 12.5% 18.2% 22.8% 27.4% 38.2% 41.4% 42.1% 40.1% 38.6%
Indusind Bank 14.0% 7.1% 9.2% 3.1% -2.3% 14.3% 15.3% 26.3% 52.2% 34.1% 46.7% 51.8% 50.4%
Kotak Bank -2.9% -15.4% -23.5% -28.0% -27.8% -11.2% 14.0% 44.3% 78.5% 81.8% 69.5% 55.7% 42.5%
Bank of Baroda 27.2% 19.5% 33.1% 46.4% 108.1% 147.1% 172.8% 169.6% 101.5% 82.9%
State Bank of India 30.0% 32.4% 35.7% 36.5% 34.3% 31.2% 28.9% 28.5% 32.4% 29.7% 25.9% 22.7% 19.8%
Source: Company, Axis Capital

Exhibit 32: Share of total unsecured loans (PLs + credit cards) within banks and YoY growth trends
Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24
Total unsecured loans (% mix)
Federal Bank 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.2% 1.2% 1.1% 1.1% 1.1% 1.3% 1.5%
HDFC Bank 16.4% 16.5% 16.7% 16.3% 15.8% 16.0% 16.2% 15.7% 16.2% 15.9% 16.3% 16.0% 16.4%
ICICI Bank 9.3% 9.2% 9.1% 9.1% 9.0% 9.5% 9.8% 10.2% 10.8% 11.5% 11.9% 12.3% 12.8%
Indusind Bank 3.8% 3.8% 3.9% 3.5% 3.4% 3.7% 3.8% 3.9% 4.2% 4.4% 4.6% 4.8% 5.0%
Kotak Bank 6.6% 6.1% 5.6% 4.9% 4.8% 4.9% 5.3% 5.8% 6.6% 7.2% 7.6% 8.1% 8.5%
Bank of Baroda 0.6% 0.6% 0.6% 0.6% 0.7% 0.8% 0.8% 1.2% 1.4% 1.8% 1.9% 2.0% 2.2%
State Bank of India 6.1% 6.7% 7.2% 7.6% 7.8% 8.3% 8.6% 8.8% 8.9% 9.0% 9.2% 9.3% 9.4%

Total unsecured loans (YoY growth)

Federal Bank 67.0% 46.1% 32.1% 21.2% 13.9% 5.5% 2.1% -3.2% -2.2% 5.5% 12.1% 36.7% 62.2%
HDFC Bank 13.4% 12.4% 8.8% 7.8% 10.4% 12.1% 13.6% 16.2% 24.2% 22.0% 20.0% 18.9% 17.1%
ICICI Bank 22.0% 14.4% 9.1% 9.4% 13.5% 20.7% 25.3% 31.9% 44.7% 48.8% 44.8% 43.2% 40.6%
Indusind Bank 19.0% 12.2% 12.4% -1.8% -4.3% 7.3% 6.4% 23.5% 46.8% 38.8% 46.0% 52.0% 43.1%
Kotak Bank -3.4% -12.1% -17.9% -24.0% -22.5% -7.4% 11.9% 42.9% 78.0% 81.5% 75.2% 64.7% 51.4%
Bank of Baroda 27.2% 19.5% 33.1% 46.4% 108.1% 147.1% 172.8% 169.6% 101.5% 82.9%
State Bank of India 30.0% 32.4% 35.7% 36.5% 34.3% 31.2% 28.9% 28.5% 32.4% 29.7% 25.9% 22.7% 19.8%
Source: Company, Axis Capital; SBI and BoB is only unsecured PL as credit card business is done out of their subsidiaries.

October 16, 2023 12

 Banks
Thematic Report

Banking system loans: share of loans other than housing rising

Banking system retail loans have seen strong growth, led by improvement in consumption.
Within retail loans, both credit cards and PLs (PLs form ~80% of other retail loans) have seen
strong growth in the past two to three years. Consequently, the share of other retail loans within
banking system credit increased to 8.8% as of Aug’23, ~50 bps/155 bps increase over the past
one/three years.

Exhibit 33: Share of other retail loans within banking system credit
Strong growth in PLs has led
10%
to steady increase in share
within banking system 8% 8.8%
credit-mix
6%

4%

2%

0%
Dec-10

Dec-12

Dec-14

Dec-16

Dec-18

Dec-20

Dec-22
Apr-10

Apr-16

Apr-18

Apr-20

Apr-22
Apr-12

Apr-14
Aug-09

Aug-11

Aug-13

Aug-15

Aug-17

Aug-19

Aug-21

Aug-23
Source: RBI, Axis Capital; Data represents share of other retail loans of which majority is unsecured personal loans.

Exhibit 34: Share of PLs within the retail loan pie has been increasing steadily
Housing Other retail loans Vehicle
Credit cards Loan against gold jewellery Education
Others
100%
4% 4% 4% 4% 4% 5% 5% 5% 5%
80% 10% 12% 12% 12% 12% 12% 12% 12% 12%

60% 27% 24% 25% 25% 26% 27% 28% 28% 28%

40%
51% 51% 50% 50% 50% 47% 47% 47% 47%
20%

0%
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Jun-23 Jul-23 Aug-23
Source: RBI, Axis Capital

October 16, 2023 13

 Banks
Thematic Report

Impact of potential increase in risk weights on PLs

The RBI has been sounding a bit cautious of late about high growth in certain components of
retail loans. The RBI has said it is closely monitoring these loans for any signs of incipient stress.
In the recent monetary policy statement, the RBI governor has advised banks and NBFCs to
strengthen their internal surveillance mechanisms, address build-up of risks, if any, and institute
suitable safeguards. However, as we have highlighted later in the report, asset quality trends for
unsecured retail loans are improving (delinquency/SMA-2 numbers are declining). One of the
options for RBI is to increase the risk weight on unsecured PLs. In Sep’19, RBI had lowered the
risk weight on unsecured PLs to 100% from 125%; credit cards continue to carry a risk weight
of 125%. We have analyzed the potential impact on CET 1 of the increase in risk weight on
unsecured PLs to 125% and 150%. As shown in Exhibit 33, even with a 150% risk weight, the
impact on CET-1 is less than 100 bps. If asset quality is holding up well and risk-adjusted returns
are favorable, then an increase in risk weight alone may not result in any significant slowdown
in growth of unsecured PLs.

Exhibit 35: Estimated impact on CET-1 due to increase in risk weights for PLs
Q1FY24 Scenario-1 (PL Risk Weight at 125%) Scenario-2 (PL Risk Weight at 150%)
Share of CET-1 Existing Risk New Risk New CET- Change in New Risk New CET- Change in
(Rs mn)
Personal loans ratio weights on PL weights on PL 1 ratio CET-1 ratio weights on PL 1 ratio CET-1 ratio
Federal 1.5% 12.5% 100% 125% 12.5% -0.05% 150% 12.4% -0.11%
HDFCB (proforma) 7.9% 17.8% 100% 125% 17.5% -0.36% 150% 17.1% -0.71%
ICICI 9.0% 16.7% 100% 125% 16.3% -0.33% 150% 16.0% -0.66%
IDFCFB 12.3% 13.7% 100% 125% 13.3% -0.36% 150% 13.0% -0.69%
IIB 2.0% 16.4% 100% 125% 16.4% -0.07% 150% 16.3% -0.15%
Kotak 5.1% 20.9% 100% 125% 20.7% -0.22% 150% 20.5% -0.43%
BOB 2.3% 11.9% 100% 125% 11.8% -0.09% 150% 11.8% -0.18%
SBIN 9.6% 10.2% 100% 125% 9.9% -0.28% 150% 9.7% -0.54%
Source: RBI, Company, Axis Capital

October 16, 2023 14

 Banks
Thematic Report

PL growth driven by increase in business volume

PL growth driven more by volume and less by ticket size

On an aggregate basis, system PL growth (~22% CAGR over Q1FY21 to Q1FY24) was largely
led by faster increase in the number of borrowers of the loans (~13% volume CAGR over
Q1FY21 to Q1FY24) vis-à-vis ticket size inflation (~8% CAGR). PSU banks (~24% CAGR over
Q1FY21 to Q1FY24) have seen faster growth vs private banks (~20% CAGR).

Exhibit 36: 3-year CAGR across loan o/s, number of borrowers, and ticket size
30%
24%
25% 22%
20%
20%
14%
15% 13%
12%
10% 9% 8%
7%

5%

0%
PSU Private SCBs PSU Private SCBs PSU Private SCBs
Amount o/ s No. of borrowers Ticket size
Source: RBI, Axis Capital; 3-Yr CAGR over Q1FY21 to Q1FY24

Exhibit 37: Banking system PL growth is largely led by faster increase in number of borrowers vs ticket size
Q420 Q121 Q221 Q321 Q421 Q122 Q222 Q322 Q422 Q123 Q223 Q323 Q423 Q124
Personal loans amount o/s (Rs bn)
PSU Banks 3,703 3,750 4,032 4,263 4,631 4,682 4,872 5,231 5,623 5,868 6,291 6,694 7,016 7,195
Private Banks 3,086 2,987 3,139 3,171 3,195 3,190 3,332 3,604 3,921 4,140 4,389 4,489 4,880 5,160
SCBs 6,934 6,877 7,322 7,599 8,005 8,044 8,410 9,037 9,760 10,243 10,946 11,489 12,171 12,629
% YoY growth
PSU Banks 21% 19% 22% 20% 25% 25% 21% 23% 21% 25% 29% 28% 25% 23%
Private Banks 39% 17% 21% 9% 4% 7% 6% 14% 23% 30% 32% 25% 24% 25%
SCBs 30% 18% 21% 15% 15% 17% 15% 19% 22% 27% 30% 27% 25% 23%
No. of borrower accounts (mn)
PSU Banks 13.2 13.8 14.7 15.2 16.4 16.5 16.8 17.2 17.9 18.3 18.9 19.8 20.0 20.6
Private Banks 11.6 12.6 12.8 12.0 11.5 11.7 12.1 13.0 13.8 14.5 15.3 16.1 16.5 17.6
SCBs 25.7 27.4 28.6 28.4 29.5 29.7 30.5 31.9 33.5 34.6 36.2 38.2 38.1 39.9
% YoY growth
PSU Banks 16% 19% 23% 19% 25% 20% 14% 13% 9% 11% 13% 15% 12% 13%
Private Banks 36% 24% 22% 6% -1% -8% -5% 8% 20% 24% 26% 24% 19% 21%
SCBs 27% 25% 25% 16% 15% 8% 7% 12% 13% 17% 19% 20% 14% 15%
Personal loans ticket size (Rs '000)
PSU Banks 280 272 274 281 282 284 291 305 314 321 333 338 350 349
Private Banks 265 236 246 263 277 273 275 277 283 285 288 279 295 293
SCBs 270 251 256 268 271 271 275 283 292 296 303 301 320 317
% YoY growth
PSU Banks 4% 0% -1% 0% 0% 4% 6% 8% 12% 13% 15% 11% 12% 9%
Private Banks 2% -6% -1% 2% 5% 16% 12% 5% 2% 4% 5% 1% 4% 3%
SCBs 2% -5% -3% -1% 0% 8% 7% 6% 8% 9% 10% 6% 10% 7%
Source: RBI, Axis Capital; Personal loans data pertains to total other retail loans as per RBI disclosures.

October 16, 2023 15

 Banks
Thematic Report

Smaller-ticket loans at higher yields

There seems to be an inverse correlation between loan yields and ticket size of PLs. The share of
high-yield (>13%) PLs in value terms was 14% as of Jun’23 vs 16% in Jun’21 and a low of 12% in
Dec’22. This is the case even though in terms of the volume of loans this segment accounted for
~35% as of Jun’23. The sweet-spot for banks is the 10-12%-yield segment, the share of which in
volume terms increased from 27% in Jun’21 to 33% in Jun’23, and in value terms it increased
from 41% in Jun’21 to 51% in Jun’23.

Exhibit 38: Interest rate-wise PL break-up (value terms) Exhibit 39: Interest rate-wise PL break-up (volume terms)
<10% =>10% & <11% =>11% & <12% <10% =>10% & <11% =>11% & <12%
=>12% & <13% >=13% =>12% & <13% >=13%
100% 100%
16% 16% 15% 13% 12% 12% 12% 12% 13% 14%
8% 7% 7% 8% 9% 10% 33% 33% 32% 32% 32% 32% 33% 34% 33% 35%
80% 11% 10% 9% 11% 80%
19% 15% 16% 18%
18% 19% 20% 20%
19% 19% 11% 10% 9% 9% 8% 8% 8% 9% 9%
60% 60% 10%
13% 15% 12% 13% 14%
29% 30% 14% 14% 14% 16% 16%
20% 22% 25% 27% 31% 31%
40% 32% 31% 40% 13% 13% 15% 17% 17% 18% 17% 17% 17% 17%
20% 33% 34% 34% 33% 36% 35% 32%
20% 29% 30% 30% 30% 30%
28% 25% 25% 28% 28% 26% 24% 22%
0% 0%
Jun-21

Jun-22

Jun-23

Jun-21

Jun-22

Jun-23
Mar-21

Dec-21

Mar-22

Dec-22

Mar-23

Mar-21

Dec-21

Mar-22

Dec-22

Mar-23
Sep-21

Sep-22

Sep-21

Sep-22
Source: RBI, Axis Capital Source: RBI, Axis Capital

Exhibit 40: Ticket size by interest rate-wise PLs

<10% =>10% & <11% =>11% & <12%
=>12% & <13% >=13% Overall
7,00,000 (Rs)
6,00,000
5,00,000
4,00,000
3,00,000
2,00,000
1,00,000
0
Jun-21

Jun-22

Jun-23
Mar-21

Dec-21

Mar-22

Dec-22

Mar-23
Sep-21

Sep-22

Source: RBI, Axis Capital

October 16, 2023 16

 Banks
Thematic Report

Key trends across lender categories

During the first wave of Covid (FY21), PL originations declined both in volume (-29% YoY) and
value (-4% YoY). However, starting FY22, the growth has rebounded quite sharply, in sync with
the wider increase in consumption trends in the economy.

Exhibit 41: Growth in value of PL originations Exhibit 42: Growth in volume of PL originations

Origination Value % YoY growth (RHS) Origination Volume % YoY growth (RHS)

7.0 46% 6.6 50% 90 200%

(Rs tn) (mn) 165% 77
42% 80
6.0 40% 150%
34% 5.2 70 63
122%
5.0 30%
60
30% 85%
27% 100%
4.0 3.8 3.6 50
2.9 20% 40
3.0 40
2.2
29% 29 50%
10% 30 22%
2.0 1.5
15
20 0%
1.0 0% 6 8 -29%
-4% 10
0.0 -10% 0 -50%
FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY17 FY18 FY19 FY20 FY21 FY22 FY23E
Source: CRIF Highmark, Axis Capital; Originations Value refers to the total Source: CRIF Highmark, Axis Capital; Originations Volume refers to the number of
sanctioned amount. FY23E data is based on Axis Capital estimates. loans sanctioned. FY23E data is based on Axis Capital estimates.

Banks have >75% share in system PLs o/s; however, NBFCs and fintechs have disbursed more
loans (~75% share).

Exhibit 43: Loan origination-mix by lender (value) Exhibit 44: Loan origination-mix by lenders (volume)

PSU banks Private banks NBFCs PSU banks Private banks NBFCs

100% 100%
17% 20% 16% 20% 22%
22%
80% 80% 35%
57%
32% 68% 74% 75%
60% 42% 40% 38% 38% 60% 77%
42%
32%
40% 40%
21%
49% 12%
20% 34% 34% 32%
39% 40% 20% 18% 17%
27% 13%
19% 18%
8% 8% 8%
0% 0%
FY18 FY19 FY20 FY21 FY22 FY23E FY18 FY19 FY20 FY21 FY22 FY23E
Source: CRIF Highmark, Axis Capital; FY23E data is based on Axis Capital estimates. Source: CRIF Highmark, Axis Capital; FY23E data based on Axis Capital estimates.

October 16, 2023 17

 Banks
Thematic Report

The rise in small-ticket PLs has been quite significant in the past two to three years, with <Rs 0.1
mn ticket size loans accounting for ~85% by volume in FY22 vs ~35% in FY18. However, the
share of these loans in value terms is only ~12% (though higher than ~6% in FY18).

Exhibit 45: Loan origination-mix by ticket size (value) Exhibit 46: Loan origination-mix by ticket size (volume)

<0.1m 0.1-0.2m 0.2-0.5m 0.5-1m 1m+ <0.1m 0.1-0.2m 0.2-0.5m 0.5-1m 1m+

100% 100% 3% 3%
11% 13% 11% 8% 6%
17% 8% 6%
22% 27% 10% 5%
7%
80% 80% 20% 8%
28% 31%
31%
30%
33% 14%
60% 30% 60%
21%
85%
40% 42% 36% 30% 40% 80% 75%
26% 24%
56%
20% 11% 20% 35%
12% 9% 8%
13%
9% 13% 10% 12%
6%
0% 0%
FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22

Source: CRIF Highmark, Axis Capital Source: CRIF Highmark, Axis Capital

PSU banks offer the largest-ticket-size loans (~Rs 420,000), followed by private banks (~Rs
180,000) and NBFCs (Rs 20,000). This clearly shows that banks focus more on larger-ticket-size
loans, while NBFCs largely cater to the small-ticket PLs (STPLs).

Exhibit 47: Lender-wise PL avg. ticket size (based on loan origination)

(Rs '000) FY21 FY22

450 420
400
350
350 320
300
250
200 180

150
100
50 30 20
0
PSU banks Private banks NBFCs
Source: CRIF Highmark, Axis Capital

October 16, 2023 18

 Banks
Thematic Report

Fintechs driving faster growth in small-ticket PLs

PLs are the largest segment for fintechs

Fintechs, which were flushed with excess liquidity (raised between FY20-22), have grown their
unsecured loan book faster on the back of quicker adoption amongst consumer base, ease and
availability of credit, and evolution of digital lending. Overall, fintechs have disbursed ~Rs 923
bn of loans in FY23 (21% YoY), of which PL constitutes ~72%.

Exhibit 48: Fintechs: total amount of loans disbursed Exhibit 49: Fintechs: total number of loans disbursed
1,000 922.7 80
71.0
70
800 764.0
60
47.7
600 50
(Rs bn)

466.2 (mn) 40
400 30

20 17.2
200
10

0 0
FY21 FY22 FY23 FY21 FY22 FY23
Source: Equifax, Axis Capital Source: Equifax, Axis Capital

Exhibit 50: Fintechs: PLs are ~72% by value Exhibit 51: Fintechs: PLs are ~83% by volume

Business Loan Consumer Loan Personal Loan Others Business Loan Consumer Loan Personal Loan Others
100% 2% 5% 100% 1% 1% 1%
7%

80% 80%
51%
63%
60% 65%
72% 60% 84% 83%

40% 40%
41%
20% 25% 20% 35%
15%
15% 16%
0% 6% 5% 6% 0% 1%
FY21 FY22 FY23 FY21 FY22 FY23
Source: Equifax, Axis Capital; data represents Fintech loan value mix Source: Equifax, Axis Capital; data represents Fintech loan volume mix

Within the loans disbursed by fintechs (in partnership with NBFCs), customer preference for
smaller-tenure loans (six months) has increased along with the higher share of small-value loans.
Further, younger customers (age <40 years) form the largest digital-lending customer base, at
80% of the loans being disbursed.

October 16, 2023 19

 Banks
Thematic Report

Exhibit 52: Share of borrowers above 40 years dominate in fintech lending

<=25 Years 25-30 Years 30-40 Years >40 Years

100%
17% 18% 19%
80%

60% 41% 42% 40%

40%
29% 27% 25%
20%
13% 13% 16%
0%
FY21 FY22 FY23
Source: Equifax, Axis Capital

Exhibit 53: Tenure-wise market share across loans disbursed by fintechs

Preference remains for
< 6 months 6 - 12 months > 12 months
shorter-tenure PLs in fintech
disbursements 100%
14% 12%
20%
80%
23%
29%
60%

40% 88%
63%
51%
20%

0%
FY21 FY22 FY23
Source: Equifax, Axis Capital

In terms of business volumes for fintechs, Maharashtra and Karnataka are the largest states for
PLs, while Uttar Pradesh has the highest share in consumer loans.

Exhibit 54: Fintechs: Top states in PLs o/s Exhibit 55: Fintechs: Top states in consumer loans o/s

Maharashtra Uttar
14% Pradesh
19%

Karnataka
10%
Others Maharashtra
Others 47% 13%
52% Telangana
9%
Bihar
Uttar
9%
Pradesh
8%
Tamil Karnataka
Nadu Gujarat
7%
7% 5%
Source: Equifax, Axis Capital, data as of Mar ’23 Source: Equifax, Axis Capital, data as of Mar ’23

October 16, 2023 20

 Banks
Thematic Report

In PLs, the preference seems to be more for smaller-ticket loans, as is visible with the steady
decline in the overall ticket size. This is driven by the higher number of loans disbursed in the
<=Rs 5,000 category. Customers seem to be using smaller-ticket loans to make convenience
payments.

Exhibit 56: Fintechs: trend in PL average ticket size Exhibit 57: Fintechs: trend in consumer loan average ticket size

25,000
35,000
21,670 31,937

20,000 30,000 26,857

25,000
15,000
12,306 20,000
11,360
(Rs)

(Rs)
10,000 15,000 12,031
10,000
5,000
5,000

0 0
FY21 FY22 FY23 FY21 FY22 FY23
Source: Equifax, Axis Capital Source: Equifax, Axis Capital

Exhibit 58: Fintechs: ticket size-mix in PLs Exhibit 59: Fintechs: ticket size-mix in consumer loans
0 - 5k 5k - 10k 10k - 50k 0 - 5k 5k - 10k 10k - 50k
50k - 100k 100k - 200k 200k - 500k 50k - 100k 100k - 200k 200k - 500k
500k and above 500k and above
100% 2% 2% 2% 100% 1% 4% 2%
13% 19% 17%
80% 32%
11% 80% 40%
18% 40%
60% 41%
60%
38% 24%
40% 40% 25%
68%
60%
20% 42% 20%
29% 30% 33%

0% 0%
FY21 FY22 FY23 FY21 FY22 FY23
Source: Equifax, Axis Capital Source: Equifax, Axis Capital

October 16, 2023 21

 Banks
Thematic Report

Mass-market has seen strong volume growth in small-ticket loans

Mass-market refers to borrowers falling within the middle- and lower-income sections. It is a
small segment in terms of value in overall lending. But it is a significant segment which has
historically been credit-deprived because of lack of credit history, small ticket size, and high cost
of origination. This segment has expanded exponentially in recent years in terms of volume of
loans. With new credit scoring models driven by alternate sources of data and technology-
driven origination reducing operating costs, some of the new-age lenders have been pursuing
growth in this segment.

Exhibit 60: Mass-market share in loan originations (value) Exhibit 61: Mass-market share in loan originations (volume)
9% 90% 82%
8% 8% 80%
8% 80% 73%
7% 67%
7% 70%
6% 60%
5%
5% 50%
4% 40%
3% 30%
2% 20%
1% 10%
0% 0%
FY20 FY21 FY22 H1FY23 FY20 FY21 FY22 H1FY23
Source: CRIF Highmark, Axis Capital Source: CRIF Highmark, Axis Capital

In small-ticket PLs, loan originations are dominated by ticket sizes less than Rs 10k, most of
which are short-tenure loans of up to three months.

Exhibit 62: Loan origination-mix by ticket size (volume)

25K-50K
8%
15K-25K
8%

10K-15K
9%

<5K
5K-10K 61%
14%

Source: CRIF Highmark, Axis Capital; Data pertains to previous six quarters up to Sep ‘22

October 16, 2023 22

 Banks
Thematic Report

Fintech players have a higher share in origination of loans from the mass-market segment, while
the presence of PSU banks is very limited in this segment.

Exhibit 63: Loan origination-mix by lender type

A differentiated business
model, focus on small-ticket PSU banks Private banks NBFCs NBFC Fintechs

loans, and reach in Tier 2 & 3 100%

cities have helped fintechs

80%
capture higher share in mass- 49.0%

60% 73.3%
market lending

40% 23.4%

20% 11.0%
20.5%
5.6% 14.1%
1.3%
0%
Value terms Volume terms
Source: CRIF Highmark, Axis Capital; Data pertains to previous six quarters up to Sep ‘22

Borrowers aged less than 35 years have originations share of 60-80% in mass-market segments
of small-ticket PLs, consumer durables, and two-wheelers. In small-ticket PLs, the share of
originations for age group of less than 25 years is 41%, the highest amongst all retail products.

Exhibit 64: Loan origination-mix by borrower age (volume) Exhibit 65: Loan origination-mix by ETC/NTC (volume)
>50 years
2%
NTC
36-50 29%
years
15% <25 years
41%

ETC
26-35 72%
years
42%
Source: CRIF Highmark, Axis Capital; Data pertains to previous six quarters up to Source: CRIF Highmark, Axis Capital; Data pertains to previous six quarters up to
Sep ‘22 Sep ‘22

October 16, 2023 23

 Banks
Thematic Report

Exhibit 66: Region-wise loan origination-mix (volume)

Urban areas command ~49%
market share in mass-market
lending
Rural
37%

Urban
49%

Semi-Urban
14%

Source: CRIF Highmark, Axis Capital; Data pertains to previous six quarters up to Sep’22

Exhibit 67: Delinquency trends in PL products for mass-market

PAR 31- 90 dpd PAR 91- 180 dpd

8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Mar-20 Mar-21 Mar-22 Sep-22
Source: CRIF Highmark, Axis Capital

October 16, 2023 24

 Banks
Thematic Report

Asset quality holding up well for unsecured retail loans

Banks’ retail loan composition has moved in favor of unsecured loans between Mar’21 and
Mar’23, with the share of unsecured retail loans increasing from 22.9% to 25.2%. Despite their
strong growth, unsecured retail loans formed only 7.9% of the total banking system credit as of
Mar’23. Moreover, their asset quality has improved, with the GNPA ratio declining from 3.2% to
2% over Mar’21 to Mar’23.

Although the GNPA ratio of retail loans at the system level was low at 1.4% in Mar’23, the share
Share of SMA 1&2 unsecured
of SMA was relatively high at 7.3% for the sector. Among banks, the share of SMA loans within
retail loans has declined from unsecured retail is the highest for PSU banks, at 9.8% as of Mar’23, while it is at 6.9% of loans for
4.2% in Mar’21 to 2.3% in the sector. However, SMA-1/2, which have higher proximity to default, have improved, with the
Mar’23 total ratio of these two categories falling from 4.2% in Mar’21 to 2.3% in Mar’23.
Exhibit 68: SMA share in retail loans (Mar’23)
SMA-0 SMA-1 SMA-2 Total
Unsecured Retail loans
PSUs 6.8% 2.4% 0.7% 9.8%
Private 2.9% 0.8% 0.3% 4.0%
FBs 1.9% 1.5% 0.6% 4.0%
All SCBs 4.6% 1.7% 0.6% 6.9%
Secured Retail loans
PSUs 5.4% 2.8% 1.0% 9.2%
Private 3.9% 1.1% 0.4% 5.4%
FBs 1.0% 0.5% 0.1% 1.5%
All SCBs 4.7% 2.0% 0.7% 7.4%
Retail loans
PSUs 5.7% 2.7% 0.9% 9.4%
Private 3.6% 1.0% 0.4% 5.0%
FBs 1.4% 0.9% 0.3% 2.6%
All SCBs 4.7% 1.9% 0.7% 7.3%
Source: TransUnion CIBIL, Axis Capital

Steady improvement in customer risk tiering

In the active retail customer base, the distribution by risk tier shows improvement in customer
mix across all categories of lenders, on the back of an increase in the share of prime-and-above-
rated customers (+400 bps YoY to 54%). Private players have 69% (+100 bps YoY) of their
customers with prime-and-above-rated scores.

Exhibit 69: Consumer distribution by risk tier by lender group (% of active retail customers)

Share of prime-and-above- Subprime Near prime Prime Prime plus Super prime
rated customers have 100% 2% 2% 1% 1% 4% 5% 10% 6% 6%
14% 13% 11% 11% 11% 12%
12%
increased 400 bps YoY to 14% 15%
80% 22% 23%
54% for the industry 35% 37%
33% 36% 26%
28%
30% 33%
60%
34% 36%
23% 26%
40% 25% 27%
23% 22% 23%
25%
16% 16%
20% 32% 33%
26% 22% 27% 28% 27% 24%
17% 15%
0%
Mar-22 Mar-23 Mar-22 Mar-23 Mar-22 Mar-23 Mar-22 Mar-23 Mar-22 Mar-23
Select NBFCs All NBFCs PSUs Private Industry
Source: TransUnion CIBIL, Axis Capital; Select NBFCs includes data of 24 NBFCs

October 16, 2023 25

 Banks
Thematic Report

The quality of incremental retail credit has improved, with the share of lower-rated (below
prime) borrowers declining at both overall industry and bank group levels. Although lower-rated
borrowers formed ~45% of the loan originations in volume terms, they represented only ~33%
of the amount originated.

Exhibit 70: Retail loans origination-mix by risk tier (value terms)

New to Credit Subprime Near prime Prime Prime plus Super prime

100% 6% 5% 5% 5% 4% 4% 4% 5%
14% 15% 13% 14% 12% 12% 11% 12%
6% 17% 16% 15% 16%
80% 6% 6% 10%
33% 34% 37% 38%
60% 39% 38% 42% 35% 37% 40% 41%
42%
40% 19% 21% 22%
18% 19% 20% 16% 17% 17% 22%
19% 17% 10% 11%
20% 9% 9% 7% 7% 6% 6% 10% 8%
8% 7%
13% 13% 12% 18% 19% 17% 15% 21% 19% 16% 15%
0% 8%
Mar-22

Mar-23

Mar-23

Mar-23
Mar-22

Mar-22
Sep-21

Sep-22

Sep-21

Sep-22

Sep-21

Sep-22
Industry PSU Banks Private Banks
Source: TransUnion CIBIL, Axis Capital

Lenders are incrementally focusing more on cross-selling unsecured retail loans to their existing
customer base (liability relationships) to drive better asset quality outcomes. The share of new-
to-credit (NTC) segment is declining (16% in Mar’23 vs 23% in Mar’21), while the share of prime
customers (in volume terms) is increasing (38% in Mar’23 vs 33% in Mar’21) across retail
products. Further, lenders are also showing caution, as the approval rates have declined across
the board.

Exhibit 71: Origination volume by risk tier (3M period) Exhibit 72: Approval rates by ETC/NTC (3M period)

NTC Below Prime Prime Above Prime ETC NTC

100% 40%
15% 17% 15% 16% 34%
35%
80% 29%
30% 26%
35% 33% 34% 32%
38% 25%
60% 28%
20% 23%
40% 15%
30% 27% 32%
30%
10%
20%
19% 23% 19% 5%
16%
0% 0%
Mar-20 Mar-21 Mar-22 Mar-23 Mar-21 Mar-22 Mar-23
Source: TransUnion CIBIL, Axis Capital; data pertains to overall retail loan products Source: TransUnion CIBIL, Axis Capital; data pertains to overall retail loan products

October 16, 2023 26

 Banks
Thematic Report

The unsecured PL transition matrix indicates moderation in risk tiering, with downgrades from
super-prime and prime-plus categories exceeding upgrades in sub-prime and near-prime
customers.

Exhibit 73: Unsecured PLs transition matrix

Risk tier as of Mar'23 Score tier Score tier
Subprime Near prime Prime Prime Plus Super Prime downgrade upgrade
Subprime 71.0% 18.3% 8.4% 2.0% 0.2% 0.0% 29.0%
Near prime 21.6% 32.1% 35.4% 10.2% 0.7% 21.6% 46.3%
Risk tier as of
Prime 8.8% 16.8% 47.7% 24.9% 1.8% 25.6% 26.7%
Mar'22
Prime plus 4.0% 9.5% 28.9% 52.1% 5.4% 42.5% 5.4%
Super prime 2.3% 7.9% 22.8% 27.6% 39.4% 60.6% 0.0%
Source: RBI, Axis Capital

Exhibit 74: Delinquency levels in retail loans across all product categories
Delinquencies (90+ dpd) have
PSB PVB NBFC/HFC FinTech
been improving across
6.0%
lenders on the back of healthy
5.0%
customer cash flows
4.0%

3.0%

2.0%

1.0%

0.0%
Apr-21

Apr-22
Jun-21

Oct-21

Jun-22

Oct-22
Feb-22

Feb-23
Nov-21

Nov-22
Mar-21

Mar-22

Mar-23
Aug-21

Aug-22
Dec-21

Dec-22
Jan-22

Jan-23
Jul-21

Jul-22
Sep-21

Sep-22
May-21

May-22

Source: TransUnion, Axis Capital

Estimated credit cost can rise by 5-45 bps in a bear case scenario
Sensitivity analysis around delinquencies in the personal loan segment within our coverage
banks indicates that for a 5% credit cost in PL can increase the credit cost assumptions by 5-45
bps for FY25E across banks. RBL Bank, which had a higher share of unsecured retail loans, had
seen a peak credit cost of ~5.2% of loans post Covid (in FY22). However, we believe, given a large
part of these loans are given to existing bank customers, a healthy self-funding ratio and steady
customer repayments trends give us comfort that the actual outcomes might be much better
than those shown in Exhibit 75.

October 16, 2023 27

 Banks
Thematic Report

Exhibit 75: Estimated credit cost impact due to stress case in PL segment (assuming credit cost of 5% for PL)
Q1FY24 Share of Credit costs Est. credit Estimated Impact on FY25E
(Rs mn)
PL in total loans on PL cost on PL % of Net profit % of Net worth Increase in total credit cost
Federal 1.5% 5.0% 1,401 2% 0.3% 0.06%
HDFCB* 7.9% 5.0% 88,367 8% 1.3% 0.32%
ICICI 9.0% 5.0% 47,398 8% 1.3% 0.36%
IDFCB 12.3% 5.0% 10,000 17% 2.2% 0.46%
IIB 2.0% 5.0% 3,042 2% 0.3% 0.08%
Kotak 5.1% 5.0% 8,346 4% 0.6% 0.20%
BOB 2.3% 5.0% 11,021 5% 0.7% 0.10%
SBIN 9.6% 5.0% 155,389 19% 2.7% 0.41%
Source: Company, Axis Capital; *Merged numbers for HDFC Bank

Exhibit 76: Share of existing customer base within PL portfolio

Most banks are leveraging
120%
their customer base and cross
~100% ~100% ~100%
selling the unsecured retail 100%
~85%
products to them to drive ~80%
80%
better asset quality outcomes
60% 55%

40%

20%

0%
Federal Kotak BOB IDFCB HDFCB ICICI
Source: Company, Axis Capital

October 16, 2023 28

 Banks
Thematic Report

Low credit penetration, superior tech offerings to drive growth

Despite posting strong growth in retail credit, India’s household debt penetration remains
significantly lower than global peers’, indicating a large headroom and potential for growth.
Traditional lenders (banks and NBFCs) have been averse to providing retail credit to low-income
households because of lack of income proof and credit history. This provides an opportunity for
new-age lenders which can use alternate sources of data for underwriting.

Exhibit 77: Household debt to GDP across economies

Low retail credit penetration
120%
provides huge runway for
96%
100% 88%
growth
80% 73%
67% 63%
61%
60% 48%
36% 35% 34%
40%
21% 17% 16%
20% 11%

0%

India
Advanced Economies

Indonesia

Turkey
All Economies

Emerging Markets
Malaysia

China
Thailand

Brazil

Mexico
South Africa
Hong Kong SAR

Russia
Source: BIS, Axis Capital

Exhibit 78: Steady growth in credit-active consumers Exhibit 79: Consumer credit penetration by consumer age
20% 18-30 31-45 46+

35%
14%
15% 13% 30%
29%
12%
25%
(YoY %)

22% 23%
9%
10% 20%
18%
15%
14%
5% 10%
10%
5%
0%
0%
Mar-20 Mar-21 Mar-22 Mar-23 Mar-20 Mar-21 Mar-22 Mar-23
Source: TransUnion CIBIL, Axis Capital Source: TransUnion CIBIL, Axis Capital; Credit penetration is the percentage of
credit active population to the total adult population

Banks and NBFCs (in partnership with fintechs) are leveraging technology to disrupt the
traditional credit appraisal and disbursement process, to offer better customer experience,
reduced turnaround times, and faster loan disbursals. Faster growth observed by select large
players and fintechs is largely on the back of better leverage of technology and faster
turnaround. Alternative credit decisioning models help improve efficiency (no physical
documentation) and offer comprehensive portfolio monitoring solutions which can provide
information based on probabilities, early warning signals.

October 16, 2023 29

 Banks
Thematic Report

Exhibit 80: Tradition vs digital-lending value chain comparison

Source: RedSeer Analysis, Axis Capital

Players within the ecosystem operate with different retail lending and collection models which
allows them to cater to different customer segments, improve risk pricing, and expand their
addressable market. Most banks operate through their extensive branch network, although
most of them have been steadily investing to enhance their technology infrastructure to digitally
source loans and compete with digital-only lenders. Banks have higher resources and strong
collection mechanisms, while fintechs’ collection mechanism is still evolving and yet tested. We
believe, whenever retail asset quality turns, fintechs’ lending/underwriting models will be tested
and could act as early warning signal for any impending stress for banks.

Unsecured retail loans growing rapidly

Unsecured retail loans have grown rapidly over the past three to four years, due to (1)
proliferation of small-ticket PLs, BNPL, etc.; (2) digitalization of loan sourcing and underwriting
(faster loan turnaround, easier process); (3) coming of age of fintechs (higher acceptance,
superior customer experience); and (4) changing customer behavior in terms of higher
propensity to borrow for consumption. For the banking system, unsecured retail credit (PLs and
credit cards loans) has been growing faster than the total system credit. NBFCs too have seen
strong growth in unsecured PLs, as select companies pivoted towards retailization of their loan
book along with offering small-ticket PLs in partnership with fintechs.

There has always been strong demand for unmet credit for segments like unsecured PLs and
SME loans, but significant improvement in data availability in recent years has enabled lenders
to better underwrite loans for new borrower segments based on these alternative data sources.
Digital lenders have also been constantly evolving their credit underwriting models.

October 16, 2023 30


Use of alternate credit
models, better mass-market
reach, customized customer
experience and products
have led to strong growth in
digital lending
October 16, 2023
Banks
Thematic Report
Exhibit 81: Digital lending ecosystem – key enablers and monitorables
Source: CRISIL, Axis Capital
#YOLO philosophy seems to be driving consumption and borrowing
After Covid, there has been a visible shift in consumption trends (You Only Live Once - #YOLO).
While consumer durables and mobile phones sales and financing have been growing for a few
years, a rapidly increasing number of consumers seem to be opting for financing for holidays,
clothing, accessories, furniture, and so on. Some of the key drivers for growth of the digital
personal lending space are as follows:
 Full-stack digital lenders have increased reach to newer customer segments and smaller
geographies (which were hitherto deprived of credit) by bypassing the need for physical
branches and offering the loans digitally.
 The use of alternate credit models, low customer acquisition cost, customized products, and
personalized customer journeys by banks and fintechs have helped credit risk profiling and
pricing of loans while making the credit widely available.
 Fintechs use AI/ML to gather vast amounts of customer micro-data to target, acquire and
onboard customers from beyond metro & Tier-1 cities and lend to new to credit customers
with thin credit history.
 Automation, use of data analytics (AI/ML)-based underwriting models, and digitalization of
operations have helped improve financial performance of lenders by reducing the need for
upfront capex and investments in employees.
 Lenders provide credit by optimizing costs across the value chain and can provide small-
ticket loans addressing the needs of an underserved market. This has led to an increase in
the share of mass-market customers in origination of PLs (in volume terms). Lenders are
also able to provide flexible payment terms by incentivizing quicker payments and charging
low carry-forward fees.
31
 Banks
Thematic Report

Case study: Unsecured consumer credit market in the US

Looking at the trends in unsecured consumer credit in the US, we see some stark contrasts:

 Fintechs have higher market share in the US (~38% in value terms as of Q2CY22) and are
steadily gaining share market share. In India, while NBFCs (incl. fintechs) command higher
share in terms of volume of loans, value market share is at ~16-22%.

 Ticket size trends in the Indian market indicate faster growth in small-ticket PLs with steady
decline in the average ticket size (Rs 143k in Mar’23E vs Rs 162k in Mar’21), while in the
US, the ticket size is rising (USD 8,018 in CY22 vs USD 6,211 in CY19).

 Delinquency trends (dpds in early buckets) indicate rising stress in unsecured credit in the
US market, while repayment behaviour is healthy in the Indian market, with the share of
SMA 1&2 loans in unsecured retail having improved over Mar’21 to Mar’23.

 The share of non-prime customers across lenders is higher in the US market (~65% with
Equifax credit score below 720) vis-à-vis India (~45% below prime within retail loans, as per
TransUnion CIBIL methodology), indicating lower stress build-up in the Indian market.

 Key reasons for the increase in demand for personal loans in the US market include
consolidation of debt, refinancing of credit card loans at lower rates, and home
improvement among others. However, in India, the strong growth is led by increase in
borrowing of PLs, rise of fintech, use of digital underwriting, and use of consumption-
related activities.

As per TransUnion data in the US, the offtake of unsecured consumer credit picked up in CY22
after subdued growth during CY20-21. There has been a shift in preference of such loans within
consumers, as indicated by increase in both the number of loans disbursed and of consumers
taking these loans. There is a visible trend in increase in both the indebtedness of customers and
the ticket size of unsecured personal loans. Customers prefer PLs because of relatively low
interest rates vis-à-vis other high-cost retail debt.

Exhibit 82: Trend in unsecured PL balances

Unsecured PLs have seen

232
~12% CAGR over CY19-22 in 250
222

the US
200
167
157
145
136

150
(USD bn)

117
102
88

100
72
72

70
65

58

56
49

48
46

50

0
2006

2008
2009

2011

2013
2014

2016
2017

2019

2021
2022
2007

2010

2012

2015

2018

2020

2023

Source: The Wall Street Journal, TransUnion, Axis Capital; Note: 2023 data is through Q2, while the rest use year-end
data

October 16, 2023 32

 Banks
Thematic Report

Exhibit 83: No. of consumers with unsecured PLs

25 22.5 22.7
20.8
19.1 19.3 19.9
20
16.9
15.8
14.4
15
(in mn)

10

0
2016

2017

2018

2021

2022

2023
2015

2019

2020
Source: TransUnion. Note: 2023 data is through Q2, while the rest use year-end data

Exhibit 84: Breakdown of outstanding consumer debt

1.4% 1.7%

6.0%
Personal loan
9.2%
Other
Credit card
9.3%
Student loan
Auto
72.5% Mortgage

Source: LendingTree analysis of Federal Reserve Bank of New York, TransUnion data, Axis Capital

Exhibit 85: Average debt per borrower Exhibit 86: Average balance of new unsecured PLs
12,000 (USD) 11,116 9,000 (USD)
8,018
9,622 8,000
10,000 7,104
8,780 8,795 7,000 6,211
5,739
8,000 6,000
5,000
6,000
4,000
4,000 3,000
2,000
2,000
1,000
0 0
CY19 CY20 CY21 CY22 CY19 CY20 CY21 CY22
Source: TransUnion, Axis Capital Source: TransUnion, Axis Capital

October 16, 2023 33

 Banks
Thematic Report

Exhibit 87: Customer-mix in terms of value of loans (CY22) Exhibit 88: Customer-mix in terms of volume of loans (CY22)

Prime Non-prime Prime Non-prime

100%
100%
29%
80% 40% 80%
56% 49%
60% 79% 67% 71%
60% 85%

40% 40%
71%
60%
44% 51%
20% 20% 33% 29%
21% 15%
0% 0%
All Depository Finance FinTech All Depository Finance FinTech
Institutions Institutions Companies Institutions Institutions Companies
Source: Federal Reserve Bank of New York, Equifax, Axis Capital; Nonprime is Source: Federal Reserve Bank of New York, Equifax, Axis Capital; Nonprime is
Equifax credit score under 720 Equifax credit score under 720

Increasing share of fintech lenders within unsecured PLs

Our player-wise analysis suggests that fintechs have been aggressive in growing their balance
sheets and have consequently seen ~17 ppt increase in market share in outstanding loans over
Q2CY17-Q2CY22.

Exhibit 89: Lender-wise unsecured PL balance o/s Exhibit 90: Lender-wise loan origination-mix

Fintech Banks, Credit Union Others Fintech Banks, Credit Union Others
100% 100%
23% 19%
34% 32% 30% 29% 27%
80% 37% 41% 39% 39% 40% 80%
27%
60% 60% 29% 30%
29% 32% 29%
35%
42% 34% 33% 29%
40% 35% 40%
47% 54%
20% 38% 20% 38% 42% 44%
27% 28% 31% 33%
21% 24%
0% 0%
Q2CY19

Q2CY19
Q2CY17

Q2CY18

Q2CY20

Q2CY21

Q2CY22

Q2CY17

Q2CY18

Q2CY20

Q2CY21

Q2CY22

Source: Federal Reserve Bank of New York, TransUnion, Axis Capital Source: Federal Reserve Bank of New York, TransUnion, Axis Capital

Contrary to what we have seen in the Indian market, the average ticket size of fintech players in
the US market is highest amongst the lenders. Households which have income of <USD 25,000
have seen increase in ticket size over the past few years, indicating higher need for credit within
the low-income group. Low-income borrowers have been borrowing relatively large amounts
compared to their annual income. On an aggregate basis, the average ticket size trend has been
declining since CY19.

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Exhibit 91: Lender-wise average ticket size

14,000
11,811
12,000 10,999

10,000

(USD)
7,714 7,560
8,000

6,000
4,339
4,000

2,000

0
Fintech Banks Credit Union US average Others

Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on Q2CY2022

Exhibit 92: Average size of PLs for borrowers across income groups

13,750
12,889

12,545
16,000

11,467
9,360

12,000
8,239

7,925

7,314
(USD)

5,001
4,725

8,000
3,583
3,374

4,000

0
CY17

CY19

CY21

CY19

CY21

CY21
CY17

CY17

CY19
Q2CY22

Q2CY22

Q2CY22
<USD 25,000 between USD 25,000 to All income groups
50,000
Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on Q2CY2022

Lenders of all types have increased their loan originations to borrowers in the below-prime risk
The share of below-prime
tiers, as indicated by faster increase in loans taken by near-prime and sub-prime customers vs
customers has increased prime and above-prime customers. The share of borrowers with credit scores below prime has
within loan origination reached 66% within the mix (as of Q2CY22).

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 Banks
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Exhibit 93: Loan origination-mix by credit score across lenders

Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on Q2CY22.

Specialized finance
companies have seen the
highest increase in the share
of borrowers with 30+ dpd
Delinquency levels have increased across buckets and have reached or exceeded pre-pandemic
levels. This rise can be attributed to the increasing share of sub-prime borrowers within the
credit-mix. Among players, fintechs have seen higher delinquencies vis-à-vis banks and credit
unions; however, specialized players have reported the highest increase in borrowers with
30+ dpd.

Exhibit 94: Delinquencies across buckets

6.0%
5.1%
4.6% 4.4%
5.0%
4.0% 3.4%
3.0% 3.1%
3.0% 2.2% 2.2% 2.3% 3.4%
2.0% 2.3%
1.0% 1.7%

0.0%
2017
2018

2021
2022

2017
2018

2022

2017
2018
2019

2022
2019
2020

2019
2020
2021

2020
2021

% of borrowers 90+ days % of borrowers 60+ days % of borrowers 30+ days

past due past due past due
Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on Q2CY22.

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 Banks
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Exhibit 95: Lender-wise delinquencies in 30+ dpd bucket

9.0% 8.4% 8.5%

8.0%
6.4%
7.0%
6.0%
5.0% 3.9% 4.1%
4.0%
3.0% 2.3% 2.4% 2.0%
1.6% 1.7% 1.8%
2.0% 1.1%
1.0%
0.0%
Jun-22

Jun-22

Jun-22

Jun-22
Jul-21

Jul-22

Jul-21

Jul-22

Jul-21

Jul-22

Jul-21

Jul-22
Finance company Credit Union Bank Fintech
Source: Federal Reserve Bank of New York, TransUnion, Axis Capital; data as on Q2CY22.

Exhibit 96: Borrower-level delinquency rate (60+ dpd)

6.0%

4.1%
3.9%
5.0%

3.9%
3.8%
3.7%

3.7%

3.6%
3.6%
3.6%

3.5%
3.5%

3.5%

3.5%

3.5%
3.4%

3.4%

3.4%
3.3%

3.3%

3.3%
3.3%

3.3%
3.2%

3.1%
3.1%

3.1%
3.0%

3.0%
4.0%

2.7%
2.7%
2.6%

2.5%
2.3%
3.0%

2.0%

1.0%

0.0%
Q2FY17

Q4FY17

Q2FY18

Q4FY18

Q2FY19

Q4FY19

Q2FY20

Q4FY20

Q2FY21

Q4FY21

Q2FY22
Q2FY15

Q4FY15

Q2FY16

Q4FY16

Q4FY22

Q2FY23
Source: TransUnion, Axis Capital

October 16, 2023 37

 Banks
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Larger banks are best placed beneficiaries

Large banks have better customer ownership, improving digital capabilities (use of AI/ML, digital
scorecards), better insights into customer cash flows, and self-funding via deposit balances. The
large banks also have well-established and tested recovery machinery in place, whereas
fintechs’ recovery mechanisms are not yet tested. The large banks have been originating most
of their PLs as cross-sell to their existing liabilities customers. These capabilities were apparent
in the aftermath of Covid when the large banks reported better asset quality outcomes across
segments than other lenders.

Most banks are focused on growing their PL book, and for Kotak Bank, BoB and SBI, we expect
the mix improvement to be higher given the relatively low share of PL in total loans for these
banks vs HDFC Bank and ICICI Bank. We also believe that Paytm can be a big beneficiary of the
faster growth in the PL market. Hence, we raise FY25/26E net profit estimates for Kotak, BoB
and SBI by 3-5% as we factor higher NIM helped by higher share of PL. For Paytm, we build in
higher growth in financial services disbursements leading to a 1-2% increase in contribution
profit and 3-6% increase in adjusted EBITDA for FY25/26E. We roll forward our TP estimates
for Kotak, BoB, SBI and Paytm to Sep’25 from Mar’25, resulting in 2-13% revision in the TPs.

Exhibit 97: Changes in estimates

FY25E FY26E
(Rs mn) Revised Earlier Chg (%) Revised Earlier Chg (%)
NIM (%)
Kotak Bank 5.35% 5.26% 9 bps 5.19% 5.09% 9 bps
Bank of Baroda 3.11% 3.05% 5 bps 3.10% 3.04% 6 bps
State Bank of India 3.19% 3.14% 6 bps 3.20% 3.13% 7 bps

Net profit
Kotak Bank 156,499 152,485 3% 180,539 175,845 3%
Bank of Baroda 175,115 168,465 4% 189,755 180,904 5%
State Bank of India 640,769 615,710 4% 705,341 668,770 5%

PAYTM
Contribution Profit 77,355 76,334 1% 94,497 92,563 2%
EBITDA (Before ESOP cost) 12,504 12,110 3% 19,004 17,873 6%
Source: Company, Axis Capital

Exhibit 98: Changes in target prices

Old TP New TP Change (%)
Kotak Bank 2,400 2,450 2%
Bank of Baroda 230 260 13%
State Bank of India 720 755 5%
PAYTM 1,100 1,200 9%
Source: Company, Axis Capital

October 16, 2023 38

 Banks
Thematic Report

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October 16, 2023 39

 Banks
Thematic Report

Axis Capital Limited

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DEFINITION OF RATINGS
Ratings Expected absolute returns over 12 months
BUY More than 15%
ADD Between 5% to 15%
REDUCE Between 5% to -10 %
SELL More than -10%

Research Disclosure - NOTICE TO US INVESTORS:

This report was prepared, approved, published and distributed by Axis Capital Limited, a company located outside of the United States (a “non-US
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October 16, 2023 40