Indian Retail Lending Loans Sector

Mapping the Indian
retail lending landscape

An overview of the sector’s
performance and the impact of
COVID-19 in Q1–Q2 FY21
May 2021
Message from PwC
Sreedhar Vegasna Asim Parashar

Partner and Financial Services Leader Partner, Financial Services
PwC India PwC India
Dear reader,
It is our pleasure to bring to you PwC’s report on the performance of the retail lending sector in Q1 and
Q2 of FY21.
The report is part of a series of publications focusing on the evolution of India’s retail industry landscape.
In this edition, we have analysed the trends in the retail lending space in India across several parameters.
When combined with our surveys and interviews of industry participants, these trends provide novel
insights to the reader.
This report has been prepared in collaboration with our partner Equifax. The scope of this edition is
limited to sourcing and delinquency trends in the retail lending market viewed across multiple lenses,
including geographies, sectors and products. This report covers the first two quarters of FY21, with an
emphasis on the time period between March 2020 and September 2020. The next instalment of the
series will cover trends from the period post September 2020 and analyse in greater detail the actual
mid-term impact of the pandemic as well as regulatory actions such as the loan repayment moratorium.
We also conducted two surveys in collaboration with Equifax – one with chief financial officers (CFOs)
of financial institutions, to gauge their expectations from a strategy and firm point of view; and the other
with credit managers at such institutions, to assess the expectations at product and customer levels.
Around 20 respondents participated in the CFO Survey and 70 respondents participated in the Credit
Manager Survey. The results of these surveys are presented in this report along with the insights based
on sourcing and delinquency trends.
We believe that the retail lending space in India is changing and evolving at a dynamic pace. As incomes
rise and consumption levels increase, the demand for retail credit is increasing rapidly. While the industry
is still plagued by the problems of sub-optimal asset quality, it is also one of the leaders in the world in
terms of digital and technological innovation. The COVID-19 pandemic has been a major challenge for
the industry, with lenders struggling with both sourcing as well as collections. Lenders such as banks,
NBFCs and other financial institutions should consider the pandemic as a turning point for retail lending
in India. They must move fast to emerge as lenders of the future.
This report provides insights into some of the points mentioned above. It also discusses certain likely
future developments in the retail lending space based on the views of industry participants. We hope you
find this report to be an informative and helpful read.
2 | PwC Mapping the Indian retail lending landscape

Message from Equifax
K. M. Nanaiah
Managing Director
Equifax Credit Information Services Pvt Ltd, and Country
Leader – India and MEA, Equifax
The Indian financial services industry faced unprecedented challenges in 2020. Despite the initial
roadblocks in navigating the unknown, this sector has shown exemplary resilience as evidenced by a
turnaround and an almost V-shaped recovery. As we enter 2021, it is time to reflect on how retail lending
trends shaped up in 2020 and identify the learnings that can drive credit offtake in this year.
Over the years, Equifax has worked with the financial services industry to help lenders maintain high
levels of underwriting standards, manage risks and drive efficiencies. We are very pleased to partner
with PwC and share with you our detailed insights and a more in-depth industry perspective on the retail
lending sector. Our joint effort to bring out the first edition of the report on retail lending is the need of
the hour, given the changing market dynamics in the past year due to COVID-19 and the impact of the
lockdown on the industry.
This report will provide insights into the trends in the Indian retail financial services industry – from
disbursements to delinquencies and from top-growing geographies to top loan categories, all viewed
through the prism of the pandemic’s impact.
We earnestly believe that this report will act as a beacon to the industry and policymakers, and help us all
navigate the new normal.
I congratulate the teams from Equifax and PwC for preparing this report.

Table of contents
01 Introduction..................................................................................... 05
• Impact of COVID-19 on the global and the Indian economy
• Impact on the BFSI sector and the lending industry
• Regulatory actions and impact
02 Sourcing and delinquency trends ................................................. 09

• Sector-wise performance
• Lender financial health
• Geography-wise performance
• Product-wise performance
• Portfolio realignment to reinforce revenue growth
03 Way forward .................................................................................... 23

• Growth strategies
• Looking towards the future
04 Glossary .......................................................................................... 27

01 Introduction
1 The impact of COVID-19 on the global and Indian economy
The COVID-19 pandemic has been one of the most impactful events in recent economic history. The pandemic affected
both demand and supply worldwide, leading to a short-term recession in many countries and a long-term setback to
growth. Both emerging and advanced economies were severely impacted in 2020. The supply shock was due to the
implementation of lockdowns, disruptions in supply chains and decrease in output due to production cuts and workforce
shortages. Business losses and liquidity crunches resulting in layoffs and pay cuts, increased unemployment and
apprehensive attitudes towards economic recovery have severely impacted consumption and investments (demand
shock). As per recent estimates by the International Monetary Fund (IMF), the global economy will shrink by 4.4%1 in
2020–21, with developing countries being the worst affected.
As per the Reserve Bank of India (RBI), the Indian economy contracted by 23.9% and 7.5% in the first and second
quarters of FY21 respectively owing to the pandemic, and is estimated to decline at an average rate of 7.5% in the year.2
Most major economic indicators such as inflation and expectations thereof, repo rate, PMI, consumer confidence, CPI
and vehicle sales have indicated signs of an economic slowdown.3 With the Government of India and the RBI struggling
to counter the demand slump even before the COVID-19 crisis, 2020 brought upon unprecedented challenges with regard
to economic revival. The RBI undertook several measures, including open market operations and rate cuts to stimulate
the economy. These resulted in the devaluation of the Indian rupee (INR) by 7% between the period from 30 January 2020
(when the first COVID-19 case was detected in the country) to 30 April 2020, and 4–5% till November 2020.
As of December 2020, Western economies have already shown signs of recovery in the second and third quarters of FY21
as restrictions were lifted and economic activities restarted. As per IMF estimates, the global economy will gradually start
reviving in FY22 at an estimated growth rate of 5.2%, post which it will stabilise to around 3.5% till 2025.4
However, the pace of recovery and growth in emerging markets (including India) will be much slower. As per a leading
credit rating agency’s estimates in November, the Indian economy will contract by 10.6% in 2020–21 and rebound at a
similar rate of 10.8% in 2021–22 to settle at a medium-term growth rate of 6%.5 With a 2019–21 growth rate of -0.9%,
the Indian economy is estimated to have a slower recovery than the global weighted average rate which is 0.6% in FY21
compared to FY19.
Within the Indian economy, the financial and professional service sector has been one of the worst by the COVID-19
pandemic. The sector witnessed a decrease in GVA of 5.3% and 8.1% in Q1 and Q2 of FY21 respectively.6 While sectors
such as trade, construction and manufacturing have recovered significantly in Q2 FY21, the BFSI sector is yet to show
signs of improvement. The banking sector may be one of the last to recover fully from the impact of COVID-19 as well as
certain pre-pandemic events.7
1 https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020
2 Reserve Bank of India, Database on Indian Economy
3 Trading Economics, India- Economic Indicators
4 https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020
5 Moody’s research and ratings – India
6 http://www.mospi.nic.in/press-release/estimates-gross-domestic-product-second-quarter-july-september-2020-2021
7 Ibid.

2 Impact on the BFSI sector and the lending industry
The pandemic has aggravated the pre-existing systemic problems in India’s banking sector. Macroeconomic problems,
extensive debt restructuring, problems with the IBC, 2016, deprecating asset quality and multiple financial fraud and
money laundering cases had already plagued the banking sector before the outbreak of the pandemic. The devastating
impact of COVID-19 on the economy has put the industry under extreme stress. For example, the corporate sector debt
of INR 15.5 lakh crore, accounting for approximately 30% of the total credit to the industry is now under stress post
COVID-19, in addition to the 42% which was already stressed.8 This takes the percentage of stressed assets in the Indian
banking sector to over 70%.
From an overall industry perspective, lenders have shown preference for retail credit over corporate credit during the first
two quarters of FY21. Due to factors such as larger ticket sizes associated with corporate loans and higher NPA rates
among such loans compared to retail, there has been a growth in the personal secured loans vis-à-vis industry credit after
the pandemic. Between March and October 2020, personal loan disbursements increased by 2.3%, while corporate loans
disbursements decreased by 5.7%.9 It is expected that a large portion of the restructuring required for non-performing
loans would arise from the corporate portfolio. Retail-heavy lenders, including certain digital lenders and NBFCs, have
fared well compared to certain larger NBFCs and banks who have large corporate portfolios.
2.1 Banks
Most bank-performance indicators have shown negative signs. Gross and net NPA have increased, CAR and PCR have
decreased, current account savings account (CASA) ratio and RoA have decreased, and DCR and NIM have reduced.10
These are indicators of diminishing asset quality, increasing vulnerability to insolvency, decreasing profitability and
overstretching of the balance sheet. Larger banks would also have to bear the cost of restructuring NPAs and that would
increase the cost of borrowing for them in the range of 2.6–3.4% in FY21.11
Public sector undertaking (PSU) banks have been more affected than their private counterparts across most financial
performance metrics (as they had been before the pandemic).12 Estimates by a rating agency suggest that most PSU
banks will bear heavy losses in FY21 and will need a huge amount of capital infusion to maintain minimum capital
adequacy requirements.13 However, there have been signs of revival and the situation has improved in Q2 FY21 compared
to Q1 FY21, especially in terms of liquidity indicators.
2.2 NBFCs and other smaller lenders

Smaller lenders such as NBFCs and home finance companies have been hit harder than larger and more established
(private sector) banks. Collections were most affected due to the restrictions imposed during the lockdown, combined with
the inability of the borrowers to repay. Most NBFCs tightened controls over credit assessment and disbursement as they
became more apprehensive about increased NPAs.
The housing finance sector has come under greater scrutiny after financial fraud cases associated with a large player in the
industry were revealed in September–October 2020. Some of the problems faced by the sector include reduced or more
expensive credit from banks and reduction in property prices due to a slump in demand. The affordable housing lending
sector was harshly affected as most low-income households applied for the moratorium or became delinquent.
FinTech and digital NBFCs were less affected by the problem of NPAs compared to traditional lenders. Shortage of funds
has been the only problem faced by several digital lenders during the past few months. These companies usually target
salaried individuals through secured personal loans. They rely on new-age underwriting models based on alternative data
from multiple sources which improves the accuracy of credit risk calculation. Collections are also managed digitally and
hence, the lockdown had a minimal impact on repayments.
8 https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/EXPERTCOMMITTEED58A96778C5E4799AE0E3FCC13DC67F2.PDF
9 Reserve Bank of India, Sectoral Deployment of Bank Credit, October 2020
10 Capitaline Database
11 https://www.bloombergquint.com/business/india-ratings-cuts-banking-sector-outlook-to-negative
12 https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/07FSR_11012021A8841538E27340A08A502704FB51FD1A.PDF
13 India Ratings and Research, Outlook report on banks, February 2021

3 Regulatory actions and impact
The RBI has taken several key actions since March 2020 with the objectives of expanding liquidity in the market, improving
credit flow, easing the financial stress of financial institutions as well as the industry, and enhancing the overall functioning
of financial markets in the country.
Several key initiatives14 were announced in the corporate lending space such as collateral-free loans, subordinate debt for
MSMEs and changes in MSME classification. Some of the key initiatives taken by the RBI are detailed below.
Financial relaxation for three months (24 March Maintenance of SLR and MSF (26 June 2020):
01 2020): Free ATM withdrawal and reduction in
bank charges for trade finance customers.
13 The borrowing limit of scheduled banks under
the MSF scheme was increased from 2% to
3% of their NDTL and the relaxed limit was
extended till 30 September 2020.
Rescheduling of payments (27 March 2020):

02 Moratorium of three months on repayment of Interest Subvention (IS) and PRI for short-
term loans, interest deferral, classification of
SMA and NPA. 12 term loans for agriculture (4 June 2020):
The repayment period was extended for the
availability of 2% IS and 3% PRI to farmers up
to 31 August 2020.
Regulatory/Basel relaxation (27 March 2020):
03 Implementation of NSFR by six months and
implementation of the last tranche of CCB by
COVID-19 regulatory package (resolution of
11
six months.
stressed assets) (23 May 2020): The period
from 1 March 2020 to 31 August 2020 was
excluded from the calculation of the 30-day
Liquidity management 1 (27 March 2020): timeline for the review period.
04 Relaxation in maximum SLR dip for MSF by
100 bps to 3% and CRR relaxation by 100 bps
to 3%a.
COVID-19 regulatory package (23 May 2020):
10 Three months of deferment from 1 June 2020
to 31 August 2020 on the recovery of interest
Monetary policy 1 (27 March 2020): The
05
applied in respect of working capital.
RBI reduced repo rate from 5.15% to
4.4% and reverse repo rate from 4.9% to
4%, and announced a TLTRO of up to INR
100,000 crore.
Provisioning on interbank exposure of UCBs
Liquidity management 2 (17 April 2020): 09 (20 April 2020): The interbank exposures
06 Relaxation of LCR under Basel III to 80% till

September 2020 and 90% till March 2021, and
arising from deposits placed by UCBs under
AID and their non-performing exposures to be
stopping of dividend payouts. fully provided within five years at the rate of
20% per annum.
Monetary policy 2 (17 April 2020): Reverse Special clearing operations (31 March 2020):
07 repo rate reduced from 4% to 3.75% and
TLTRO 2 of INR 50,000 crore for NBFCs
08 Special clearing was carried out exclusively
for Government cheques at all clearing houses
announced. across the country on 31 March 2020.
14 Reserve Bank of India, Notifications, 2020–21

Change in the minimum daily maintenance of 24x7 availability of the RTGS system
14 the CRR (26 June 2020): The minimum daily
maintenance of CRR was reduced from 90%
23 (4 December 2020): RTGS to be available on all
days of the year with effect from 00:30 hours on
of the prescribed CRR to 80% and the relaxed 14 December 2020.
limit was extended till 30 September 2020.
Distressed Assets Fund – Subordinate Debt Review of regulatory framework for HFCs
15 for Stressed MSMEs (1 July 2020): The banks
permitted to reckon the funds infused by the
22 (22 October 2020): The regulatory framework
for HFCs has been modified; an NBFC whose
promoters in their MSME units through loans financial assets – in the business of providing
availed under the captioned scheme as equity/ finance for housing – constitutes at least 60% of
quasi equity from the promoters for debt-equity its total assets.
computation.
Resolution Framework for COVID-19-related
16 Stress (6 August 2020): A window under the

prudential framework was created to enable Scheme for grant of ex-gratia payment
lenders to implement a resolution plan in
respect of eligible corporate exposures while 21 (26 October 2020): A scheme was launched which
mandates ex-gratia payment to certain categories
classifying such exposures as standard. of borrowers by crediting the difference between
simple interest and compound interest for the
period between 1 March 2020 to 31 August 2020
MSME sector – Restructuring of Advances by respective lending institutions.
17 (6 August 2020): Existing loans to

MSMEs classified as ‘standard’ may be
restructured without a downgrade in the
asset classification, with banks maintaining
additional provision of 5% over and above the Interest Subvention Scheme for MSMEs –
provision already held by them.
20 Co-operative banks (7 October 2020): The validity
of the Interest Subvention Scheme for MSMEs
Basel III Capital Regulations (29 September 2018 has been extended till 31 March 2021.
18 2020): The pre-specified trigger for loss

absorption through conversion/write-down
of Additional Tier 1 instruments (Perpetual
Non-Convertible Preference Shares and
Perpetual Debt Instruments) to remain at Basel III Framework on Liquidity
5.5% of RWAs and will rise to 6.125% of
RWAs from 1 April 2021.
19 Standards (NSFR) (29 September 2020): The
implementation of NSFR guidelines deferred by
a further period of six months and to come into
effect from 1 April 2021.

02 Sourcing and
delinquency trends
In the wake of economic uncertainties, the demand for high ticket-size loans decreased significantly between January
2020 and June 2020. While the number of loans sourced across all ticket sizes reduced by approximately 20% in the
second quarter of FY21 compared to the same period in FY20, disbursement of large ticket-size loans (>INR 75 lakh)
witnessed the sharpest decline of around 80% owing to the inclination of borrowers towards small ticket-sized loans and
cautionary appraisal mechanisms adopted by lenders based on borrowers’ credit history and repayment behaviour.
Comparison of ticket size (INR) based retail loans for the quarter ending in September 2020 compared to the
quarter ending in September 2019
100,000,000 0%
Number of loans disbursed
-20%
10,000,000
Growth rate
-40%
1,000,000
-60%
100,000
-80%
10,000 -100%
0–50K 50k–1L IL–2L 2L–4L 4–10L 10L–15L 15L–25L 25L–75L +75L
Sep-19 Sep-20 Growth rate

Source: Equifax
As of September 2020, a total of over INR 9 trillion was stuck in accounts classified as one of the various degrees of
delinquent/bad loans, including standard delinquent accounts, sub-standard, doubtful and loss, and multiple DPD buckets
ranging from 30 to over 720 days (excluding written-off and restructured loans). Overall, from March 2020 to September
2020 across all sectors, the number of customer accounts in delinquency initially saw a dip due to the moratorium offered
by the RBI for loan repayments, followed by a resurgence of the DPD account numbers. The trend will be more concrete
in the coming quarters. From Q3 FY21 to Q2 FY22, a negative trend was exhibited in the DPD9015 and DPD120 16 buckets
wherein the number of delinquent accounts decreased by 28% and 5% respectively. While the total amount outstanding in
DPD90 accounts fell by 39%, that in the DPD120 category increased by 1%. A growth of 12% and 11% was recorded in
the number of accounts and value of restructured loans respectively, and a growth of 20% in number and 13% in the value
of written-off loans was recorded in the first two quarters of FY21.
15 Accounts that are between 60 to 90 Days Past Due on repayment (RBI classification)
16 Accounts that are between 90 to 120 Days Past Due on repayment (RBI classification)

QoQ growth rate of number of accounts – DPD90 QoQ growth rate of number of accounts – DPD120
10%
40%
0%
Mar-20 Sep-20 20%
-10% Dec-19 Jun-20
0%
-20%
-20% Dec-19 Mar-20 Jun-20 Sep-20
-30%
-40% -40%
DPD90 Rural DPD90 Semi-urban DPD120 Rural DPD120 Semi-urban

DPD90 Urban DPD120 Urban
Source: Equifax Source: Equifax
The COVID-19 crisis is forcing lenders to go back to their drawing boards and rethink sales, servicing, collection and
operating models. At the same time, some organisations are utilising the pandemic as an opportunity to develop tactical
and strategic interventions to develop long-term resilience.
1 Sector-wise performance
In the wake of the pandemic, restrictions on mobility due to lockdowns, change in new client-acquisition mechanisms
and the limited availability of robust infrastructure for contactless selling coupled with muted customer demand resulted
in a steep decline in the loan disbursements across all financial institutions in Q1 FY21. SFBs, foreign banks and private
banks recorded the steepest declines. The decline for SFBs can be attributed to the high impact of lockdown-related
restrictions, combined with the increased uncertainty in employment for middle- and low-income groups. Additionally, the
mobility limitations significantly impacted the personalised high-touch service offerings of the SFBs in the form of monthly
meetings with members which act as a differentiation factor compared to universal banks.
QoQ growth rate and comparison of the number of disbursements for retail loans (FI-wise split)
20,000,000 2.5
18,000,000
2.0 PSU bank

16,000,000
Private bank
14,000,000 1.5
NBFC
Growth rate
12,000,000 1.0
10,000,000 HFC
8,000,000 0.5 g (PSU)
6,000,000 0.0 g (Pvt)
4,000,000
-0.5 g (NBFC)
2,000,000
- -1.0 g (HFC)
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20
Source: Equifax

QoQ growth rate and comparison of the number of disbursements for retail loans (FI-wise split)
140,000 1,000%
120,000 800% Foreign bank

100,000
600% RRB
Growth rate
80,000
400% SFB
60,000
g (Foreign bank)
200%
40,000
g (RRB)
20,000 0%
g (SFB)
0 -200%
Source: Equifax
All financial institutions witnessed high QoQ growth in the second quarter of FY21 owing to the uptake in economic
activity, except for regional rural banks which witnessed a negative growth rate in the period. However, compared to the
same quarter for FY20, all financial institutions witnessed a decline in loan disbursements. Foreign banks accounted for
the steepest decline, followed by NBFCs, private banks and SFBs.
QoQ growth rate and comparison of the number of accounts in DPD120 (FI-wise split)
900,000 2.0%
800,000 PSU Bank
1.5%
Number of accounts
700,000 Private Bank

600,000 1.0%
NBFC
Growth rate
500,000
0.5% HFC
400,000
g (PSU)
300,000 0.0%
g (Pvt)
200,000
-0.5% g (NBFC)
100,000
g (HFC)
0 -1.0%
Source: Equifax
On the delinquency aspect, increasing number of layoffs, deferrals/salary reductions, higher unemployment, and
decreasing economic activity due to lockdowns contributed to a significant short-term liquidity crunch for many middle-
and low-income borrowers. Such cash shortages affected the repayment capacity of a large section of retail borrowers.
This, coupled with regulatory interventions such as the moratorium and ex-gratia payments schemes, hampered lender
profitability. Such schemes are also believed to have negatively affected the attitudes of borrowers and their and
willingness to repay.
NBFCs were the worst-affected both in major DPD buckets (90 days and 120
While all types of lenders days). Over 850,000 accounts were under the DPD 90 bucket in September
2020, accounting for a total of over INR 83 billion in balances. The number
have been affected by
of delinquent accounts with NBFCs doubled from the Q1 FY21 to Q2 FY21.
accounts turning delinquent, The numbers were very high for NBFCs even before the pandemic. Increased
some were impacted more involvement in lending to ‘traditionally unconventional’ customers by NBFCs –
than the rest. those with a lower credit rating than typical bank customers – was one of the
reasons for the high numbers of stressed assets.

QoQ growth rate and comparison of the number of accounts in DPD90 (FI-wise split)
1,400,000 0.3%
PSU bank
0.2%
1,200,000
Number of accounts
0.1% Private bank

1,00,000 0.0% NBFC
Growth rate
800,000 -0.1%
HFC
-0.2%
600,000 -0.3% g (PSU)
400,000 -0.4% g (Pvt)
-0.5%
200,000 g (NBFC)
-0.6%
0 -0.7% g (HFC)
Source: Equifax
In terms of the QoQ growth rate of delinquent accounts across the DPD buckets, there was a dip in the growth rate in Q1
FY21 and a sharp rise in Q2. The moratorium on repayment of loans, first announced by the RBI for three months (March
2020–May 2020) and then extended for a further three months till August 2020 provided protection to stressed borrowers
and is expected to have contributed to the sharp rise in delinquent accounts in September 2020.
2 Lender financial health

Key reasons of concern for banks and other lenders include:
1. Increased NPAs and SMAs: Deterioration in asset quality as many SMEs and retail customers are unable to repay
loans due to falling sales, decreased income and job losses. Several corporates are unable to recover from the shock
and have become delinquent.
2. Decreased CASA ratio: Higher cost of borrowing as the CASA ratio decreases due to eroding consumer savings.
Consumers are becoming increasingly reluctant to deposit money in banks as the cost of deposits increases.
3. Lower demand/sales: Interest income for lenders has reduced as the consumption and demand for loans have
decreased while NPAs have increased. Unsecured credit has been performing worse while secured loans are affected
to a lesser extent.
4. Falling capital adequacy: There has been a dip in the CAR as credit and market risks increase and tier I and II capital
decreases. Even though there are relaxations in risk-related regulatory requirements, maintaining capital adequacy
remains a challenge.
5. Cash flow problems: Higher cost of capital and deferral of interest collections have led to liquidity crunches for banks.
Higher operating expenditure and a reduced NIM have added to the problem.

Impact of COVID-19 on financial ratios of lenders
3.5
Median of impact on ratio (5: high, 1: low)
2.5
1.5
0.5
0
(Increase in) (Decrease in) (Decrease in) (Decrease in) (Decrease in) (Increase in) (Increase in)
Gross non-per- Provisioning Return on Net interest Capital Asset liability Credit deposit
forming assets coverage ratio assets (RoA) margin (NIM) adequacy ratio mismatch ratio (CDR)
(NPA) (PCR) (CAR)
Source: PwC-Equifax survey
As per the PwC-Equifax survey, the respondents rated certain key financial ratios that indicate an organisation’s financial
health on a scale of 1–5 (5 being the most affected). The ratios in decreasing order of the impact due to the pandemic
are – gross NPA (increase), PCR (decrease), RoA (decrease), NIM (decrease), CAR (decrease), asset-liability mismatch
(increase) and CDR (increase). Most market participants expect NPAs to increase rapidly due to factors such as increasing
unemployment, job losses and the decreasing tendency to pay post the moratorium period. The greatest drivers for
increasing NPAs are likely to be business loans and housing and property loans in urban areas. As a consequence of
deteriorating asset quality and increasing NPAs, the PCR and RoA for lenders are also expected to decrease, thereby
increasing the vulnerability of lenders even to relatively smaller economic shocks.
Expectation of revenue streams coming back to pre-pandemic (normal) levels
25%
20%
% of respondents
15%
10%
5%
0%
Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY 2023
The lockdown and stagnation of economic activities coupled with regulatory interventions such as the moratorium on loan
repayment and ex-gratia payment of difference between compound and simple interest have impacted the profitability of
lenders, resulting in a decrease in the NIM. This slump in profitability is expected to continue in the short term. Bankers
expected the CDR to be the least affected due to the pandemic. Consumers are focusing more on saving as spending
has reduced and the expectations of a quick economic recovery are low. This, combined with a slower credit offtake and
lenders being less willing to lend due to decreasing asset quality, is less likely to increase the CDR.
In terms of post-COVID-19 recovery expectations, there is a lack of consensus among industry participants on the timeline
of recovering to pre-pandemic levels. The respondents in the PwC-Equifax survey were split into two major groups – those
lenders who are confident of a faster recovery and those who believe in a slower one. The former group, comprising
around 45% of the respondents, believe that revenues will be back to pre-pandemic levels (for the same quarter in the
previous years) between Q4 FY21 or Q1 FY22. The latter group, comprising around 55% of the respondents believe that
revenues would bounce back between Q3–Q4 FY22 or in FY23.

3 Geography-wise performance
3.1 Urban vs rural trends

The number of new loans sanctioned decreased significantly across both rural and urban areas with the onset of the
pandemic. The number of new loans sanctioned decreased by 68%, 70% and 76% respectively across rural, semi-
urban and urban areas during the first quarter of FY20 owing to the lockdown and limited availability of robust digital
infrastructure to transition swiftly from partially digital lending journeys to end-to-end digital lending journeys. However,
lesser number of job losses and containment zones in rural areas compared to semi-urban and urban areas resulted in a
lower impact of the pandemic on retail lending in rural areas.
QoQ growth rate for retail loans
150%
116%
100% 90% 93%
50%
23% 27% 24% 25% 24%
-10% 19%
10% -6% -3% -12%
1%
0%
Rural Semi-urban Urban
-50%
-68% -70%
-76%
-100%
June-19 Sep-19 Dec-19 Mar-20 June-20 Sep-20
Source: Equifax
Comparing the share of delinquent accounts across regions by the degree of urbanisation, it was observed that as of
September 2020, the contribution of semi-urban areas was the highest followed by urban and rural areas. However,
in terms of contribution to the current outstanding in such accounts, urban areas were in the lead owing to the higher
ticket size of loans.

Looking at the growth rates of accounts in delinquency, the trend for DPD90 is opposite to those in DPD120. The number
of accounts in the DPD120 category increased at an alarming rate after the first quarter of FY21 while those in DPD90
decreased at varying rates across urban/semi-urban/rural geographies. Compared to Q1 FY21, accounts delinquent
up to 90 days in rural areas grew by 11%, those in semi-urban areas grew by 17% and those in urban areas grew at a
rate of 29%. Such a high rate of growth among urban borrowers may be attributed to the higher dependency of urban
household income on manufacturing and service sectors which were more drastically impacted due to the pandemic and
the subsequent lockdown, compared to agriculture as well as migration from urban to rural areas. A higher prevalence of
COVID-19 cases in urban areas compared to more remote areas also contributed to a greater disruption of day-to-day life
and increased income instability. Semi-urban areas fared in between urban and rural areas in all measures. A sharp rise
in delinquent accounts at the end of Q2 FY21 may also be attributed to the end of the moratorium period in August. The
effect has not yet set in for DPD90 but is likely to develop in the third quarter.
Distribution of the outstanding amounts in Distribution of number of delinquent

deilnquent accounts by rural/urban area accounts by rural/urban area
28% 34%
44% 45%
46%
45%
40% 39%
26% 21% 17% 16%
90 DPD 120 DPD 90 DPD 120 DPD
Number of rural accounts Current rural outstanding

Number of semi-urban accounts Current semi-urban outstanding
Number of urban accounts Current urban outstanding
3.2 State-wise trends
As of September 2020, ten Indian states and union territories (UTs) had approximately 75% of the country’s COVID-19
cases. Key states like Maharashtra, Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Uttar Pradesh and Delhi also
witnessed the highest contraction in the disbursement of retail loans in Q1 FY21, to the tune of approximately 60%
compared to the previous quarter. Among the key states/UTs, Maharashtra and Delhi witnessed the sharpest decline
in disbursements in Q1 FY21 while the impact was lower in Kerala and Uttar Pradesh. However, with the resumption of
economic activity, high QoQ growth was witnessed in Delhi, Gujarat and Maharashtra. On the other hand, though the
pandemic’s impact on Rajasthan was limited till September 2020, the growth in disbursements was muted in Q2 FY21.
Despite the growth in retail loan disbursements in the second quarter of FY21, the total value of disbursements across
the key states decreased by approximately 30% compared to the same period in FY20. Among the states, Uttar Pradesh
witnessed the lowest decline in loan disbursements value (around 7%) in Q2 FY21 compared to the same period in FY20.
Considering the product-wise distribution of retail loan disbursements for key states, Maharashtra had the highest share
of auto loans (15%) for the first two quarters of FY21, Tamil Nadu and Uttar Pradesh registered the highest share in two-
wheeler loans (17% and 16% respectively) and Gujarat registered the highest share of 14% in the used-car loan segment
for the same period. In the tractor loan segment, Uttar Pradesh and Rajasthan had the highest share with 19% and 18%
respectively, owing to the high agriculture-driven economic activity in these states.

QoQ growth rate comparison for retail loans disbursements (state-wise split)
200%
150%
100%
50%
0%
es a
ad hr
at
i
ra
s
la
u
an
sh
a
h
h
Pr n d
er
an
ad
ak
el
ar
ra
ht
de
h
th
D
ng
uj
Ke
A
st
at
N
as
-50%
ra
O
G
ja
rn
il
la
ar
rP
m
Ra
Ka
Te
ah
Ta
tta
M
U
-100%
Dec-19 Mar-20 June-20 Sep-20

Source: Equifax
In the mortgage-related (home loans and LAP), personal and consumer loan segments, Maharashtra had the highest share
among all the key states for the first two quarters of FY21 at around 20%. In the business loan segment, Uttar Pradesh
had the highest share of 22% in loan disbursements in the first two quarters of FY21.
Looking at delinquency trends, the number of delinquent accounts in DPD90 category are higher in Maharashtra, Uttar
Pradesh and Tamil Nadu compared to the other states. As of September 2020, there were a total of over 440,000
delinquent accounts overdue by 60–90 days in the three states combined. The top five states (Maharashtra, Uttar Pradesh,
Tamil Nadu, Andhra Pradesh and Karnataka) alone contribute to almost 50% of the total number of delinquent accounts by
60–90 days of delay. Considering the larger number of loans outstanding in these larger states, higher delinquency rates
are expected. However, looking at the growth rate for the DPD90 bucket from March 2020–September 2020, we observe
that Uttar Pradesh and Rajasthan have been impacted the most. Among the large states, Gujarat and Kerala are better
performing in the DPD90 category and saw the greatest decrease in the number of delinquent accounts in DPD90 between
the same period. In all the major states, the number of accounts in delinquency have reduced in Q2 compared to the
preceding three quarters, which may be indicative of recovery.
QoQ growth rate for DPD90 accounts (state-wise split)
3.5
3.0
2.5
In lakh
2.0
1.5
1.0
0
Andhra Delhi Gujarat Karnataka Kerala Rajasthan Telangana Uttar
Pradesh Maharashtra Tamil Nadu Pradesh
Source: Equifax

4 Product-wise performance
4.1 Home loans and LAP

Sourcing of home loans and LAP declined by approximately 50% in the first quarter of FY20 compared to the previous
quarter. The lockdown and its impact led to potential homebuyers postponing their purchases. Additionally, the limited
availability of resources to conduct field investigations and stricter mechanisms employed by lenders to evaluate the
disposable income and repayment capacity of prospective borrowers – specifically buyers receiving soft sanctions through
digital channels – further reduced the number of home loans and LAP sanctioned.
While the average ticket size of both housing loans and LAP declined significantly owing to the pandemic in Q2 FY20,
incentivisation through the Pradhan Mantri Awas Yojana and the fall in interest rates coupled with lower registration costs
in some areas resulted in an uptake in both the number of home loans and the average home loan ticket size in Q2 FY20.
The uptake could also be attributed to the pandemic exposing the uncertainties associated with a rented accommodation.
However, while the number of LAP sanctioned witnessed growth in Q3 FY20, the ticket size witnessed a sharp decline
compared to the previous quarter. With small business owners being the primary consumers of LAP and demand from
them being impacted significantly by the pandemic, such loans transitioned into instruments for sustaining businesses
rather than expanding them.
Different trends were observed according to product groups by comparing the change in delinquent accounts by types of
products. For housing type loans which comprise housing loans and property loans, a large increase in growth rate was
observed in the number of accounts delinquent by up to 90 days, from March 2020 to September 2020. The sharp dip
observed in June may be attributed to the RBI’s loan moratorium.
QoQ growth rate for the number of LAP QoQ growth rate for the number of DPD90
and home loans sourced accounts for LAP and home loans
250% 20%
200%
0%
150% Dec-12 Mar-20 Jun-20 Sep-20
100% -20%
50% -40%
0%
Dec-19 Mar-20 June-20 Sep-20 -60%
-50%
-100% -80%
Home loan Property loan

Home loan Property loan

4.2 Auto-related loans
Auto, two-wheeler and used-car loans grew positively in Q2 FY21 owing to the need of personal transportation after
declining by approximately 70% in Q1 FY21 as compared to the previous quarter. However, the number of loans
sanctioned in Q2 FY21 decreased by approximately 30% compared to the same period in FY20.
Tractor financing grew negatively in the last quarter of FY20 and bounced back during in Q1 FY21 owing to the increased
focus of banks and NBFCs on the rural portfolio, good monsoon forecasts, exemption of agricultural activities from
lockdowns and fewer COVID-19 cases in rural and semi-urban areas. The growth continued in Q2 and Q3 of FY21. The Q3
growth rate was approximately 20% more compared to the same period in Q3 FY20.
For delinquency trends, the performance was not consistent across the group. A sharp rise in the number of accounts in
DPD90 was observed in Q1 followed by a large dip in Q2 for two-wheeler and used-car loans. However, an opposite trend
was observed for the other two products – auto and tractor loans. The performance of auto and tractor loans remained
less volatile compared to two-wheeler and used-car loans.
The number of delinquent accounts in smaller ticket-size loans (such personal, consumer and two-wheeler loans) is
much higher than those in higher-ticket loans such as business, property and housing loans. Such higher-ticket loans still
contribute to a majority of the stressed assets for lenders due to their larger sizes. In the DPD90 bucket, the number of
delinquent accounts is much higher in the two-wheeler and personal loan categories.
QoQ growth rate for the number of QoQ growth rate for the number of DPD90
auto-related loans sourced accounts for auto-related loans
250% 40%
200%
20%
150%
100% 0%
Dec-12 Mar-20 Jun-20 Sep-20
50% -20%
0%
Dec-19 Mar-20 June-20 Sep-20 -40%
-50%
-100% Auto loan Tractor loan

Auto loan Tractor loan Two-wheeler loan Used-car loan
Two-wheeler loan Used-car loan

4.3 Personal, consumer and business loans
The COVID-19 crisis resulted in layoffs, pay cuts and a consequent decrease in disposable income. The aspiration-
driven demand for personal and consumer loans transitioned into need-driven demand with consumers taking loans for
educational purposes and health emergencies. This resulted in a decline of approximately 70% in the number of personal
and consumer loans sourced in Q1 FY21 compared to the previous quarter. While the second quarter witnessed a growth
in sourcing, the numbers decreased by approximately 40% and 20% respectively for personal loans and consumer loans
compared to the same period in FY20. Though ticket sizes for both personal and consumer loans remained similar to the
pre-pandemic quarters, the former contracted the most among all retail-lending products during the pandemic.
QoQ growth rate for the number of business loans QoQ growth rate for the number of personal and
sourced consumer loans sourced
150% 200%
100%
100%
50%
0% 0%
Dec-19 Mar-20 Jun-20 Sep-20 Dec-19 Mar-20 Jun-20 Sep-20
-50%
-100%
Business loan
Personal loan Consumer loan
Cash flows of businesses were significantly impacted due to the lockdowns and muted consumption. Q1 FY21 witnessed
business expansion being deprioritised, resulting in a decline in the number of business loans sourced. However, with
the opening of the economy post the lockdown and tailored product offerings by banks and NBFCs for businesses, the
number of business loans sanctioned grew in Q2 FY21. The number of loans sanctioned in Q2 FY21 increased by 84%
compared to the same period in FY20. However, the average ticket size of business loans decreased by 61% compared to
the same quarter in FY20 as businesses remained conservative in taking large ticket-size loans.
While the growth rates for personal and consumer loans in QoQ growth rate for the number of DPD90 accounts
the DPD90 category fell in September 2020 compared to for personal, consumer and business loans
the previous quarter, business loans grew at around 50% in
DPD90 accounts over the same time period. 100%
Based on the data available for the time period from Q2 50%
FY20–Q2 FY21, even though an upward trend was observed 0%
for delinquent accounts, the situation can be considered to Dec-12 Mar-20 Jun-20 Sep-20
be complicated at the moment and further trends will have -50%
to be observed in Q3 and Q4 of FY21 to understand the -100%
actual medium-term effects of economic conditions and
regulatory actions. A lagged effect of the financial situation Business loan Consumer loan
and regulatory interventions can be determined only in the Personal loan
coming quarters and the trends observed as of now may
Source: Equifax
move towards either of the directions.
5 Portfolio realignment to reinforce revenue growth
The pandemic put lenders in a difficult position owing to falling liquidity and low growth prospects of major sectors.
Consequently, lenders have become more conservative and are planning to expand their focus on existing customers
and offer products to support them. As per PwC’s Credit Manager Survey, 62% of managers will be targeting existing
customers amidst muted credit demand and reduced discretionary spends by prospects, 22% are looking to target new to
bank customers, and only 16% are focusing on new to credit customers.

Credit managers’ outlook for post-pandemic demand growth
60% 56% 53%

50%
% of respondents
40%
31% 29% 29%
30%
20% 20% 20% 20% 18% 18%
20%
13% 11%
10%
0%
SME/ MFI Home Automobile Education Credit Used-car
business loans loans/LAP (personal) loans cards loans
loans loans
Personal Agricultural/ Affordable Commercial Consumer Gold
loans equipment loans housing loans vehicle loans durable loans loans
Proportion expecting high demand growth

Within the different target groups, credit managers are expecting maximum demand growth for personal loans and SME/
business loans in the retail lending landscape. Additionally, 29% are optimistic about high growth in agricultural/equipment
loans, while 31% are optimistic about growth in the MFI loan segment, primarily owing to the limited impact of the
pandemic in rural areas compared to urban centres.
In line with the above findings, around 57% of credit managers have highlighted small business owners and SME
customers as key focus segments. Further, 19% are looking to focus on rural customers, while around 18% are focusing
on salaried customers.
The sentiment has been echoed in the launch of contextual offerings of both business as well as personal loans by
lenders. In the personal loan segment, products like instant zero interest loans of specific amounts and rental deposit loans
were introduced, while for small businesses, emergency credit lines have been introduced by multiple lenders. However,
while lenders are revisiting their products, it is imperative to complement the same with a sector and geographical focus to
achieve maximum returns.
Focus customer segments for credit managers
35% 31%
% of respondents
30% 27%
25%
20% 19%
20%
15%
10%
4%
5%
0%
Small-business SME customers Rural customers Salaried Others
owners customers
On the repayment front, from a product perspective, credit managers expect maximum stress build-up for personal loans
and consumer durable loan segments owing to the reduced income of consumers (34% and 30% respectively). Other
key products where recoveries are expected to be significantly impacted include SME/business loans (27%), commercial
vehicle loans (27%) and credit cards (26%).
In such a scenario, lenders are expected to change their lending strategies, especially for the unsecured portfolio, in order
to manage asset quality and mitigate emerging risks in the portfolio.

Expected stress build-up across products
40%
35% 34%
% of respondents
30%
30% 27% 27% 26% 26%
25% 21%
20% 19%
16% 16% 15%
15%
10% 8%
5% 4%
0%
Personal Commercial Credit Agricultural/ Automobile Affordable Gold
loans vehicle loans cards equipment (personal) housing loans loans
loans loans
Consumer SME/ MFI Home Education Used-car
durable loans business loans loans loans/LAP loans loans
Source: PwC survey
73% of credit managers are exploring a

change in their lending strategies
in the unsecured portfolio
The primary focus of lenders is to manage liquidity risk by
increasing recoveries in the overall market. Around 25% of lenders
believe that the moratorium negatively impacted the repayment
PwC-Equifax survey behaviour of customers and hence a differentiated strategy needs
to be adopted for managing recoveries and collections.
Measures by credit managers to manage emerging risks in portfolio
30%
25.52%
25% 22.07%
% of respondents
20% 18.62%
15.17% 13.79%
15%
10%
4.83%
5%
0%
Proactive Enriching Predictive Reviewing Stress testing Other
collection contactability analytics for portfolios for
strategy and information of underwriting and line
effort customers collections adjustments

Further, 22% of lenders are focusing on enriching contact information for customers to maximise penetration
within customer groups and speed up collections. Other key measures being adopted by credit managers for
risk management include stress testing, portfolio realignment and data-driven collections and underwriting.
Negatively impacted recoveries are driving credit managers to modify underwriting standards to balance sales in the
short term with stability in the long term. The strategy of lenders of offering high-risk unsecured loans for higher returns
is expected to undergo a significant change. Interestingly, 36% of credit managers are exploring the use of alternative
data sources for comprehensive underwriting of prospects, and 26% are looking for a direct increase in score cut-offs for
loan eligibility, while 21% are tightening LTVs. Tighter lending criteria may further lead to credit demand shrinkage with
borrowers taking up loans only for essential services – hence the role of data in balancing risk and returns.
New underwriting standards to be adopted for customer acquisition
40% 36%
35%
% of respondents
30% 26%
25% 21%
20%
15%
10% 8% 8%
5%
0%
Using alternative data Increasing Tightening Keeping the same Others
for more comprehen- core cut-offs the LTVs underwriting
sive underwriting standards

03 Way forward
1 Growth strategies
While expectations of recovery in revenue growth may vary for different groups of market participants, it is imperative for
all factions to take certain measures to ensure the fulfilment of their expectations. Lenders need to look to identify sectors
and geographies with a positive market outlook and build upon their portfolio, while for sectors and geographies with a
negative market outlook, selective expansion and focused servicing of existing customers should be prioritised.
As per PwC’s survey, respondents favoured multiple strategies for business growth, with product and service innovation
being the most preferred one (29%). This was followed by innovation in distribution channels. Rethinking customer
segmentation, product pricing and tapping new geographies emerged as moderately popular strategies
The high preference for product and service innovation in the retail lending space may be driven by the following factors:
1. developing mobile services into a lifestyle app rather than just a banking app
2. bundling traditional banking products with other services such as insurance and investment
3. offering value-added services such as financial planning and spend analysis
4. personalising banking offerings through micro-segmentation
5. partnering with third-party providers for disbursing pre-approved credit with reduced issuance TAT
6. partnering with FinTechs to offer value-added services.
Focus strategies for rebuilding revenue streams during and post the recovery phase
% of respondents
Product/service innovation 29%
Distribution channels 21%
Customer segmentation 14%
Pricing strategies 12%
Geographic markets 12%
M&A and partnerships 7%
Talent and HR 5%
Many financial institutions have been facing liquidity and cash flow problems due to the economic slowdown since March
2020. The pandemic is still far from over and the effects of this disruption will be felt in the coming years. Expectations of
economic recovery are slow in the short term. Organisations must therefore streamline their costs and prioritise essential
expenditure to survive the acute cash shortages. They also need to realign their investment strategies optimally with
their revenue growth objectives. Of multiple options, the areas of choice for investment by most respondents were, in
descending order, digital transformation, customer experience and IT/cyber security

Digital transformation has emerged as the key strategic focus as well as the key area for investment and development
at most financial institutions. Customer experience is the crux of the discussion on digital, and all digital interventions
revolve around improving customer experience. These two strategies thus go hand in hand. As organisations transform
their operating models to embrace digital, there will be an ever-increasing dependence on technology and data for all
decision making. IT and cyber security thus cannot be neglected and will emerge as a key area for development at all
financial institutions. Some key interventions required to develop differentiated customer experience by leveraging digital
transformation may include:
1. developing a transformative digital strategy for sustainable growth and profitability
2. designing a collaborative and scalable technology operating model
3. using an agile approach to speed up and optimise implementation and results
4. engaging stakeholders and setting up effective programme management and change management initiatives
5. establishing end-to-end digital capabilities supported by state-of-the-art technology architecture.
Two key action areas for digital transformation are digitisation and data-driven intelligence. Some perspectives around
these two areas are provided below.
Focus areas for investing in the near future
% of respondents
Digital transformation 29%
Customer experience 25%
IT and cyber security 21%
Marketing 8%
Operations 6%
ESG activities 6%
Facilities/general capex 2%
Workforce/HR 2%

1.1 Accelerated digitisation
As the economy moves towards recovery in the post-pandemic phase, the key priority for retail lending credit managers is
to build a sustainable lending ecosystem with accelerated digitisation both for customer acquisition and servicing.
Among the credit managers surveyed by PwC, around 50% are accelerating deployment of digital tools for customer
acquisition, while nearly 40% are focusing on collections, customer servicing and fraud prevention.
Digital tools that credit managers are exploring or have already adopted
20% 18.54%
18%
16% 15.61%
% of respondents
14% 13.17% 13.17% 13.17%

11.71%
12%
10% 8.78%
8%
6% 4.88%
4%
2% 0.98%
0%
Online Analytics e-sign/ Workflow for Others
verifications (behavioural/ e-Mandate automated
(e.g. PAN and sentiment/ issuance
voter ID) predictive, etc.) process
Business rule engine Digital Video Account aggregators/-
for automated credit collections KYC Sahmati
decisioning
On the customer sourcing front, the pandemic along with the regulators’ push for key drivers like video KYC has provided
an impetus to both borrowers and lenders to accelerate the adoption of digital platforms. Lenders are focusing on
optimising costs on physical channels to build agile and modular digital lending infrastructure driven by zero-touch selling
solutions encompassing lead management, loan origination and end-to-end customer onboarding.
As per PwC’s survey, 43% of credit managers are focusing on video KYC, online verification mechanisms and e-sign/e-
mandates to streamline the process of origination. On the processing front, workforce efforts are being redirected away
from repetitive manual tasks, with 24% of managers exploring workflows automation and business rule engines for
automated credit decisioning.
The other key focus area for digitisation is collections and customer servicing, including repayment management, with
around 15% of credit managers focusing efforts on digitisation of collections and 17% on servicing. With the growth of
mobile and data penetration across all regions, lenders are looking to capitalise on this opportunity to inculcate digital
repayment behaviour among customers and leverage innovative mechanisms like voicebot-enabled collections for
improved customer experience, traceability and a reduction in operational costs.
1.2 Data-driven intelligence

In the current changing scenario of retail lending, data intelligence has become essential for building a resilient lending
ecosystem. Credit managers are focusing on data-driven insights across the lending lifecycle, especially on underwriting
and collections for improved risk management. Lenders are looking at adopting predictive data models for credit
assessment of prospects and enriching the data models with alternative sources of data for a holistic 360-degree view
of the customer, thus minimising the risk of default. On the servicing and collection front, lenders are looking to leverage
advanced data intelligence for pre-emptive default predictions using customers’ repayment behaviour, insights from
customers’ accounts as well as online and social activities.

However, it is also essential for lenders to realise that assessments based on data that is a year old may not be of
relevance to lenders in the current scenario and thus to gain maximum insights, recent snapshots of data need to be
captured in an agile manner.
18% of credit managers are moving

towards predictive analytics for
collections and underwriting
36% of credit managers are looking to
adopt alternative data for more
comprehensive underwriting
PwC-Equifax survey PwC-Equifax survey
2 Looking towards the future
A large number of market participants have come to realise that black-swan events like COVID-19 are set to become
more common in the future and organisations need to become more robust and resilient in order to minimise the impact of
such events. Several possible interventions may help in achieving this goal of increased resilience. Digital transformation
and adoption of technological initiatives was the most preferred strategy in this direction. The second-most important
strategy selected by respondents was to control NPA growth and falling NIM by making their underwriting more robust.
Leveraging alternative data sources for underwriting was another preferred option, followed by building customer trust and
brand loyalty.
There is no doubt that COVID-19 has had an unprecedented impact on the retail lending industry – across geographies,
sectors, customer segments and product categories. While it is still early to assess the full-scale economic impact of the
pandemic, the repercussions of the same are likely to be felt in the coming years. Both sourcing as well as collection of
loans has been drastically affected, with credit offtake at record lows and asset quality at highly degraded levels. Lenders
are in a particularly challenging situation as they face multiple problems such as shrinking profit margins, bad debts and
write-offs, and a liquidity crunch. After a major slump in the first two quarters of FY21, the later quarters are expected
to bring in hope for lenders as the economy slowly witnesses signs of revival. As of September 2020, both sourcing and
delinquency trends have been highly volatile due to multiple interventions by the Government, the RBI and lenders, and
only in the following quarters will they be meaningfully analysable. In the following reports in this series, we will analyse, in
greater depth, the impact of the pandemic on the industry in the mid and long term. However, one thing which is certain is
that the industry will no longer be the same as before.
Lenders such as banks, NBFCs and other financial institutions should take this event as a turning point for retail lending in
India. They must move fast to emerge as lenders of the future. As more and more customers are adopting digital banking
and payments, these institutions must embrace digital to be relevant in the changing market. It is extremely important for
financial institutions get back to the drawing board and redefine their strategy, and rethink what their organisation stands
for. They must innovate across the board, including their service offerings, channels, operating model and customer
service. They must also optimise their expenditure and invest in projects that provide the most returns while propelling
the organisation towards their strategic goals. Lending organisations now have an opportunity to transform their operating
models and emerge as modern, resilient and lean organisations, ready to adapt and overcome the challenges of the future.

04 Glossary
Abbreviation Full form Abbreviation Full form
AID All-Inclusive Directions MSF Marginal standing facility
CAR Capital adequacy ratio MSME Micro, small and medium enterprises
CCB Capital conservation buffer NBFC Non-banking financial company
CPI Consumer price index NDTL Net demand and time liabilities
CRR Cash reserve ratio NIM Net interest margin
DCR Deposits to credit ratio NPA Non-performing asset
DPD Days past due NSFR Net stable funding ratio
DPD120 Accounts that are between 90 to 120 PCR Provision coverage ratio
days past due on repayment
PMI Purchasing manager’s index
DPD90 Accounts that are between 60 to 90
days past due on repayment PRI Prompt repayment incentive
GDP Gross domestic product QoQ Quarter on quarter
GVA Gross value added RBI Reserve Bank of India
HFC Housing finance company RoA Return on assets
IBC Insolvency and Bankruptcy Code, 2016 RTGS Real-time gross settlement
IMF International Monetary Fund RWA Risk weighted asset
LAP Loan against property SFB Small finance bank
LCR Liquidity coverage ratio SLR Statutory liquidity ratio
LTV Loan to value SMA Special Mention Account
MFI Microfinance institution SME Small and medium enterprises
MSF Marginal standing facility TLTRO Targeted long-term repo operations
UCB Urban co-operative bank

About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 155 countries
with over 284,000 people who are committed to delivering quality in assurance, advisory and tax services. PwC refers to the
PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/
structure for further details.
Find out more about PwC India and tell us what matters to you by visiting us at www.pwc.in
Contact us Contributors
Sreedhar Vegesna Safal Pachpute, Senior Associate, PwC India
Financial Services Leader Bhumika Vishnoi, Senior Associate, PwC India
PwC India
sreedhar.vegesna@pwc.com
Asim Parashar
Partner, Financial Services
Editorial support
PwC India Dion D’Souza
asim.parashar@pwc.com Saptarshi Dutta
Mohit Bansal
Director, Financial Services Design
PwC India Faaiz Gul
mohit.bansal@pwc.com Harshpal Singh

pwc.in
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Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each
member firm of which is a separate legal entity.
This document does not constitute professional advice. The information in this document has been obtained or derived from sources
believed by PricewaterhouseCoopers Private Limited (PwCPL) to be reliable but PwCPL does not represent that this information is
accurate or complete. Any opinions or estimates contained in this document represent the judgment of PwCPL at this time and are
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Mapping the Indian

retail lending landscape

Sreedhar Vegasna Asim Parashar

2 | PwC Mapping the Indian retail lending landscape

3 | PwC Mapping the Indian retail lending landscape

02 Sourcing and delinquency trends ................................................. 09

03 Way forward .................................................................................... 23

4 | PwC Mapping the Indian retail lending landscape

1 The impact of COVID-19 on the global and Indian economy

5 | PwC Mapping the Indian retail lending landscape

2.2 NBFCs and other smaller lenders

6 | PwC Mapping the Indian retail lending landscape

Rescheduling of payments (27 March 2020):

06 Relaxation of LCR under Basel III to 80% till

14 Reserve Bank of India, Notifications, 2020–21

7 | PwC Mapping the Indian retail lending landscape

Resolution Framework for COVID-19-related

16 Stress (6 August 2020): A window under the

17 (6 August 2020): Existing loans to

18 2020): The pre-specified trigger for loss

8 | PwC Mapping the Indian retail lending landscape

Sep-19 Sep-20 Growth rate

9 | PwC Mapping the Indian retail lending landscape

DPD90 Rural DPD90 Semi-urban DPD120 Rural DPD120 Semi-urban

2.0 PSU bank

10 | PwC Mapping the Indian retail lending landscape

120,000 800% Foreign bank

700,000 Private Bank

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0.1% Private bank

2 Lender financial health

12 | PwC Mapping the Indian retail lending landscape

Source: PwC-Equifax survey

Expectation of revenue streams coming back to pre-pandemic (normal) levels

Source: PwC-Equifax survey

13 | PwC Mapping the Indian retail lending landscape

3.1 Urban vs rural trends

QoQ growth rate for retail loans

100% 90% 93%

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Distribution of the outstanding amounts in Distribution of number of delinquent

26% 21% 17% 16%

90 DPD 120 DPD 90 DPD 120 DPD

Number of rural accounts Current rural outstanding

Source: Equifax Source: Equifax

3.2 State-wise trends

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Dec-19 Mar-20 June-20 Sep-20

QoQ growth rate for DPD90 accounts (state-wise split)

Sep-19 Dec-19 Mar-20 Jun-20 Sep-20

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4.1 Home loans and LAP

Home loan Property loan

Source: Equifax Source: Equifax

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-100% Auto loan Tractor loan

Source: Equifax Source: Equifax

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5 Portfolio realignment to reinforce revenue growth

19 | PwC Mapping the Indian retail lending landscape