Disbursements in the consumer durable segment are poised to grow at a healthy pace of 21-24 per cent per annum to reach ₹1.9-2.1 lakh crore in FY2021, according to the rating agency ICRA.

While shortening replacement cycles in consumer electronics and the large under-penetrated market in the consumer appliances segments augur well from a demand perspective, proliferation of lender-kiosks at dealer locations, increasing awareness and promotional loan schemes are likely to translate into higher finance offtake.

During the period FY2013-FY2017, NBFCs’ consumer durable finance portfolios grew by about five times; consequently, their share in the overall consumer durable portfolio of banks and NBFCs increased from 19 per cent as on March 31, 2013, to 32 per cent as on March 31, 2017.

High operating costs

Consumer durable loans characterised by small ticket size, shorter loan tenure and high loan-to-value, have witnessed good traction on the back of strong demand for consumer durables and rising finance penetration.

Margins in the consumer durable segment are healthy given the high yields of around 23-26 per cent.

However, operating costs in this segment are also high at around 10-11 per cent, given the significant costs for collections and to some extent for client acquisition.

The credit costs are also high at an average of 2.5-3.5 per cent.

“ICRA expects that competition in the consumer durable lending space is set to intensify as more NBFCs enter the space which could have an impact on margins.

“High operating and credit costs, notwithstanding the superior yields, will remain the key entry barriers into the segment.

“Any dilution in underwriting standards could lead to a higher skew towards sub-prime borrowers resulting in elevated credit costs and lower returns.

“In order to mitigate risks arising from diluted underwriting standards, adherence to conservative lending norms, strengthening internal systems and frequent monitoring of portfolio performance would remain critical,” said Karthik Srinivasan, Senior Vice-President and Group Head, Financial Sector Ratings, ICRA.

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