Kolkata: Consumer credit has peaked this festive season with multiple retailers and brands saying it has surged to a new level as a proportion of overall purchases, bankrolled by non banking finance companies (NBFC) and banks. That’s in a scenario where consumption has been muted, save on ecommerce platforms, because of India’s economic slowdown and NBFCs have been caught up in a liquidity squeeze.
Lenders significantly expanded their presence through direct tieups with retailers and brands and offered cashback schemes, increasing adoption, with a sustained push from the finance ministry to revive retail loan disbursem*nt and consumer spending, said people with knowledge of the matter.
Purchases through consumer finance touched a record of about 75% for televisions, refrigerators and washing machines, while for smartphones it accounted for 55-60% of total transactions, as estimated by retailers. That compares with a norm of 60% and 40-45%, respectively, they said.
The country’s two largest ecommerce marketplaces, Amazon and Walmart owned Flipkart, reported more than 100% growth on consumer credit linked purchases this festive season over last year with a high degree of adoption by smaller towns and firsttime buyers. Apparel retailers such as Shoppers Stop, Arvind Brands and Puma also focussed on consumer credit schemes this festive season.
Lenders such as Bank of Baroda, powered by a bigger balance sheet through its merger with Dena Bank and Vijaya Bank, joined the likes of HDFC Bank and Bajaj Finance to take advantage of festive buying in an otherwise dull market weighed down by the consumption slump. IDFC First Bank, created by the merger of IDFC Bank and nonbank lender Capital First, also looked to tap the festive opportunity.
J&K Bank, RBL Bank, Federal Bank, Kotak Mahindra Bank and Standard Chartered also focussed on festive season promotions.
NBFCs such as HDB Financial Services expanded their presence in smaller towns and neighbourhood shops.
Banks, brands and retailers have been aggressively driving big-ticket items this festive season through the consumer finance route, said Ritesh Ghosal, marketing head at Tata-owned electronics retail chain Croma. The average purchase value has gone up by 11% this season, he said.
Consumers are going in for size or category upgrades this Diwali, said electronics chain Vijay Sales’ director Nilesh Gupta, attributing this to easy consumer finance rather than buoyant consumer sentiment.
Retail chains such as Croma, Vijay Sales, Sangeetha Mobile, Spice Hotspot, Great Eastern and Kohinoor said the contribution of credit-linked purchases to total sales have grown by 15-25% this festive season. Even apparel and furniture retailers have seen a robust pickup in credit-linked purchases. Puma said credit-linked purchases jumped 80% during the festive season and consumers made 120% higher billing for such transactions compared to those on full upfront payment.
Great Eastern Retail director Pulkit Baid said cashback offers have improved the penetration of consumer finance this festive season.
ICICI Bank said it has seen a boom in card use for digital purchases.
“The transactions at ecommerce platforms by our customers using our debit and credit cards and internet banking have grown 10-fold compared to similar period last year,” said Pranav Mishra, head of liabilities at ICICI Bank. “We expect record-breaking response from our customers this time around. Our experience so far predicts that we will end the festive season with growth numbers which are manifold of earlier years.”
The trend, if borne out by data, will spell a turnaround of sorts.
Consumer durable loans by banks shrank 13% to Rs 5,484 crore in August from March, according to the latest Reserve Bank of India (RBI) data. In the same period, banks' credit card outstandings have grown 10.6% to Rs 97,650 crore with large credit card issuers saying that the economic slowdown has not impacted them much. The RBI is yet to release credit numbers for September.
Amazon India said around 40% of total sales during the festive season was driven by consumer finance and credit card purchases.
An industry executive said most of the credit card transactions got converted into equated monthly installments (EMIs).
For Flipkart, around 20% was driven by finance options and another 18% was on credit cards.
A Flipkart spokesperson said customers who opted for installment-based payments this festive season bought items that were about 110% costlier on average than those who paid the full amount upfront.
A recent study by Retailers Association of India and Litmus-World show consumers are holding back cash spending during the ongoing festive season with the preference dropping from 19% last year to 9% this year. It also highlighted that cashback offers and equated monthly instalments (EMIs) were among the top five factors influencing purchase decisions.
The festive season — starting with Onam in Kerala covering Navratri, Durga Puja, Dussehra, Karva Chauth, Dhanteras and Diwali — is the biggest consumption period in India, contributing about 35-40% of annual sales of most consumer-facing companies.
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