Young First-Time Borrowers Launch Personal Loan Market in India

MUMBAI: Young adults under 25 with low-value short-term credit are the main buyers of personal loans, which grew 2.3 times in value and 3.8 times in volume in terms of disbursements from FY17 to FY21.
Many of these borrowers are first-time borrowers, with lenders rating them using analytics and other digital assessment tools. In the case of two-wheelers, 65% of borrowers were first-time loan seekers, while it was 35% in the case of those who bought durable consumer goods such as refrigerators or washing machines on credit. .
For lenders, especially non-banks, small is fine, with the amount of personal loans dropping sharply even as the volumes of these loans increase. Between FY17 and FY21, the average ticket size for personal loans decreased by 40% to Rs 1.5 lakh from Rs 2.4 lakh.

In the personal loan segment, low cost personal loans (STPL – less than Rs 1 lakh), which are largely funded by non-bank finance companies, have tripled in terms of disbursements and more than 11 times in volume in the past. during the period FY17 to FY21. These STPL borrowers now represent half of all personal loan accounts in the country.
CRIF High Mark credit bureau conducted a comprehensive study, titled ‘How India Lends’, capturing market trends over five years. “The credit landscape in India is constantly changing and has witnessed changing consumer preferences, shifting demand towards smaller loans, ease of access to credit, increased use of digital platforms and entry of non-traditional lenders into the ecosystem, to name a few, ”said CRIF High Mark Managing Director and CEO Navin Chandani.
While lenders are lending at low cost at a breakneck pace, the activity has not attracted much attention as the overall loan portfolio has not grown much as these advances are short term and small in size. .
The portfolio of low cost personal loans with lenders has grown from Rs 26,700 crore in March 2019 to Rs 39,700 crore in March 2020, growing 48% in one year. The outstanding loans only increased by 3.6% to reach Rs 41,200 crore in FY21. While the value of the loan portfolio decreased in FY21, in terms of In number of loans, accounts grew 19% to nearly 2 crore.
By the way, it is the small borrowers who experience the most stress when repaying. According to CRIF High Mark, STPL loans have 8.8% of borrowers who are unable to make payments on time (31-180 days) compared to 3.5% in the personal loan segments.
According to the report, the total size of the loan market in India in March of this year was Rs 157 lakh crore. Of this total, retail trade and commerce each account for 49%. Microfinance represents the balance 2%. Over the past five years, retail, microcredit and trade credit portfolios have grown by 91%, 157% and 93%, respectively. Even after the second wave of Covid, personal loans continued to grow.
According to a report by CARE Ratings, the growth rate of the retail / personal lending segment was 11.2% and was 220 basis points (100 basis points = 1 percentage point) higher in July from this year compared to July 2020. In absolute terms, the credit outstanding increased from Rs 25.7 lakh crore in July 2020 to Rs 28.6 lakh crore in July 2021.

Priscilla C. Carnegie