With corporate credit staying sluggish for quite some time now, banks had turned aggressively to the retail segment to push for loan growth.

Now the Reserve Bank of India (RBI) has warned that the retail-led credit growth model, led by housing loans, is facing headwinds.

Flagging concerns on the deteriorating credit quality in the retail books of lenders, the RBI has pointed out the rising delinquencies in the consumer finance portfolio while there has been a slowdown in the new-to-credit segment.

“The retail-led credit growth model is confronting headwinds: first, delinquencies in the consumer finance portfolio have risen, and second, the new-to-credit segment, a key driver of consumer credit growth in the pre-pandemic period, is showing a decline in originations,” the RBI said in its financial stability report.

Between April and the first week of December, credit disbursal rose 7.1% versus 5.4% growth a year ago and 5.2% in March 2021, according to the report.

In recent years, growth in wholesale credit has been lagging; retail credit, on the other hand, was generally recording double-digit growth, although the pace of growth remains below the pre-pandemic level.

Housing loans and other personal loans constituted as much as 64% of incremental credit during the last two financial years.

The share of retail/personal loans constituted 64.4% of incremental credit disbursal in FY21, up from 64.1% in FY20. Of this housing loans constituted 31.2% of the total incremental credit in FY21, up from 30% in FY20.