Consumer & SME loan market to reach $3 trillion in next decade : Report

With the government taking various initiatives for hassle-free and cashless financial transactions, the consumer and SME loan market is expected to grow to $3,020 billion over the next decade, says a Credit Suisse report.

As per the report by the Swiss brokerage, the domestic financial landscape is likely to transform mainly on the back of government initiatives like Jan Dhan, Aadhaar and the unified payment interface, as also rising mobile penetration.

These initiatives have created backbone for instantaneous, inter-operable, cashless financial transactions. We estimate the consumer and SME loan market will grow from $600 billion to $3,020 billion over the next decade, the report said.

These three systems, which are getting integrated with each other, are expected to allow a range of innovative services to be implemented in a paperless, instantaneous and cost-effective manner, it added. The report also estimates that total retail loans are likely to increase five times over the next 10 years.

Consumer loans-to-GDP ratio is likely to increase to 25 per cent of GDP by 2025-26 from 17 per cent now, driven by the increase in mortgage penetration and contribution from personal and other unsecured loans. The report also estimates that total retail loans are likely to increase five times over the next 10 years. Consumer loans-to-GDP ratio is likely to increase to 25 per cent of GDP by 2025-26 from 17 per cent now, driven by the increase in mortgage penetration and contribution from personal and other unsecured loans.

SME loans, on the other hand, are expected to register a CAGR of 17 per cent resulting in SME loans-to-GDP increasing to 10 per cent by 2025-26 from 7 per cent now. The brokerage further said the benefits of digitisation could improve consumer banks' profitability by 30-70 per cent through a combination of lower costs (cost to asset lower by 30-60 bps) as well as better revenues from acceleration in customer acquisition, higher cross-sell ratios and a rise in fee income.

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As the country goes from being data-poor to data-rich over the next two-three years, data will become the new currency and financial institutions will be willing to forego transaction fees to get rich digital info on their customers.

It also means customer ownership will rest with best interface providers and incumbency of deposits will be challenged, Credit Suisse said.

It further noted that the process of disintermediation of retail deposits as seen over the past few decades is going to accelerate significantly with digitisation.

At the same time, several revenue streams, especially those one which needs least customer engagement, could be at risk of disruption due to digital revolution, it said.