The retail finance market in India has regained its lost sheen as loan disbursements in this space is likely to see a 29 per cent annual growth and is expected to touch a whopping Rs 4.2 lakh crore by 2011-12.
“The huge untapped demand, coupled with the rebound in profitability for financiers, is expected to spur a boom in retail finance in the coming years,” Infrastructure lending major IDFC said in a research report.
Not too far in the past, regulatory forbearance and a cyclical downturn in the economy had taken the sheen off the lucrative retail finance industry. Pursuant to which, the market grew by a meagre 8 per cent over FY08-10 against around 50 per cent CAGR over FY05-08.
The growth in the retail finance disbursement would be largely driven by improving affordability, increasing propensity to consume and the fact that the penetration level of retail finance loans is still low.
“We expect annual disbursements in the segment to accelerate to 29 per cent compound annual growth rate (CAGR) over FY10-12 to a whopping Rs 4.2 lakh crore in FY12.”
India, home to one of the world’s youngest population (480 million people under the age of 40 years), offers a perfect ground for proliferation of retail finance. On the back of improving income demographics and thereby higher affordability, penetration of retail assets was on the rise.
The report further highlighted the fact that the higher income bracket in the country is growing faster. The number of households in the lowest income bracket has fallen in absolute terms from 41 million to 31 million.
Besides, the proportion of house holds with annual income below Rs 10 million falling to 36 per cent from 46 per cent over FY10-15, the report added.
“Burgeoning middle income households ideal market for retail loans, at a time when asset prices are stable and affordability is rising,” it said.
There are as many as 480 million Indians (or 41 per cent of population) in age group of 15-40 years with high material aspirations, on the back of increasing urbanisation. Besides, India has a high proportion of young people who are not wary of borrowing.
There is ample scope to expand as auto penetration remains low, as also the 2-wheeler penetration. In mortgages there is ample scope to grow, besides credit card penetration also lags, the report added.