Festive sales hit as brands flag tighter consumer credit lines

Brands and retailers are flagging some restrictions on the hitherto easy availability of consumer finance ahead of the festive season, especially for consumers who have multiple loans and are staying in localities with high default rates.

Banks and non-banking finance companies (NBFCs) are not giving easy credit to such consumers as they want to control loan loss and improve credit quality, instead of just pursuing volume, they said. This, industry executives said, is affecting their business.

Tata Group AC manufacturer Voltas' chief financial officer, KV Sridhar, told analysts this month that the consumer durables sector was experiencing headwinds, including tightening of credit flow.

In Karnataka, NBFCs have completely blocked over 700 localities, including more than 200 in Bengaluru itself, with high default cases after the state government earlier this year brought in a law that prohibits finance institutions from using coercive tactics to recover loans, industry executives said. The law makes such practices a non-bailable offence that could attract a fine of up to ₹5 lakh or a jail term of up to 10 years.

"Business is getting affected in Karnataka due to the difficulty of accessing consumer finance with several genuine customers being left out," said Rajkumar Pai, managing director at Pai International Electronics, which runs more than 220 electronics and mobile phone stores.

Consumer finance accounts for 50-65% of purchase of high-value products like mid-to-premium smartphones, large-screen TVs, refrigerators, washing machines, laptops and ACs. Even for luxury fashion and accessories, finance has been picking up as a mode of payment.

Consumer leverage is an area of concern, Bajaj Finance MD Rajeev Jain told analysts. The company, one of the largest NBFCs, reported a 26% year-on-year increase in loan losses and provisions to '2,120 crore in the April-June quarter.

"Company across lines of businesses continue to take several actions across all products to reduce the contribution of customers with multiple loans. That's the single univariate pain point that you have identified, which has significant high bearings on loan loss and provisions," he said.

Citing an example, Jain said 14% of customers used to have multiple loans that went all the way to 21% and has been now brought down to 17%. "And we are watching it," he said.

Banks' outstanding consumer durable loans contracted 3.9% year-on-year to '23,715 crore at the end of May from '24,683 crore a year back, as per latest data from the Reserve Bank of India. Such outstanding loans had increased 15% a year earlier.

Kailash Lakhyani, founder-chairman of the All India Mobile Retailers Association, which represents more than 150,000 cell phone stores, said consumer loan frauds have gone up whereby fraudsters would buy phones costing over a lakh rupees like Apple's iPhone or Samsung's Fold and S Series handsets on credit and then sell it to get the cash. "After which, they become untraceable. The retailer is then unjustifiably pressured by the NBFC to get the repayment. So, NBFCs have also increased their scrutiny of the buyer," he said.

Central bank data show growth in credit card outstanding as of end-May slowed to 8.5% from 26.2% a year earlier. Credit cards are one of the preferred modes of transaction, especially in urban areas.

The contraction in consumer loans has slowed down the overall personal loan offtake of banks. Personal loan growth slowed to 12.1% year-on-year in June 2025 from 25.6% a year earlier, said Care Ratings. "The deceleration stemmed from weaker demand in housing, vehicles, credit cards and other consumption loans amid RBI's regulatory tightening and stress in unsecured lending," the ratings firm said in a report.