Spurred by the liberalization process, there has been a gradual move away from a supplyconstrained
economy to a demand-driven one. Moreover, the typical Indian consumer's mindset
has changed as well. Austerity is no longer considered a virtue and debt is not a taboo any more
in a typical middle-class Indian family.
The arrival of cheaper finance has completely changed buying patterns. Today the size of the
consumer finance market is estimated at over Rs 70,000 crore, clocking an annual growth of over
30 percent. Seven out of ten cars are currently sold through loans. Rural markets also account for
one-third of the consumer finance purchase. Cheaper and more easily available finance has
enabled consumers to upgrade and buy costlier products. As a result, purchase patterns have
changed significantly, and consumers are now buying higher quality goods.
In view of this changing landscape, we look at the three major drivers of growth in consumer
finance: auto finance, housing finance and consumer durable finance. We discuss the trends in
each of these areas as well as the shortcomings which are slowing down growth. We present
some of the innovative product ideas which have appeared in the market recently and others
which have the potential and can pick up provided adequate attention is paid. These include
customer financing by large retail outlets, range of credit card offerings, innovations in education
finance, rural finance, etc.
The role of risk management has also been discussed as far as containing delinquencies and
losses in repayment of loans are concerned. The mortgage portfolio performance will get affected
by a sharp drop in real estate prices, drop in rents, changes in the tax laws removing exemptions
for mortgage repayments. The Auto loans portfolio can get affected by the drop in re-sale values
of cars, decrease in car prices, exchange rates, etc. Unsecured products like personal loans and
credit cards can get affected by macro economic factors like employment rates, inflation, interest
rates etc. We therefore provide an overview of the risk mitigation strategies which are available to
lenders and progress made in this direction so far.