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From bikes to durables, young, first-time borrowers are driving up India’s personal loan market

Young adults, below 25, are single handedly driving personal loans up by availing short-term low-value credit. Banks aren’t complaining. The segment has seen numbers swell up 2.3 times by value and 3.8 times by volume in terms of disbursals from FY17 to FY21.

A lot of them have applied for loans for the first time while lenders are assessing these borrowers via analytics and digital appraisal tools.

65% of borrowers sought for loans for the first time while 35% of them bought consumer durables such as refrigerators or washing machines on credit.

Small is beautiful for lenders (non-banks especially) when it comes to the size of personal loans shrinking sharply even as volumes continue to swell up.

Average ticket size of personal loans diminished by 40% between FY17 and FY21 from RS. 2.4 lakh to Rs 1.5 lakh.

Small ticket personal loans (STPL

STPL borrowers now make up for half the personal loan accounts in India.

‘How India Lends” is a comprehensive study by credit bureau CRIF High Mark which portrays market trends over 5 years.

“The credit landscape in India is ever-evolving and has witnessed changing consumer preferences, shift in demand towards smaller ticket loans, ease of access to credit, increased us age of digital platforms and entry of non–traditional lenders in the ecosystem, to name a few,” said Navin Chandani, CEI and MD, CRIF High Mark was quoted as saying in a TOI report.

Small-ticket personal loans have picked up pace, yet, the activity has not gained many eyeballs since the overall loan book hasn’t grown substantially because of the short term, small sized loans.

Portfolio of STPL with lenders grew from Rs 26,700 crore in March of 2019 to RS 39,700 crore in the same month of 2020. The growth rate was 48% a year.

It doesn’t come as a shock that its the smaller borrowers that face more stress in repayment. As per CRIF High Mark, the STPL loans have 8.8% borrowers that are unable to repay in time (31-180 days) against the 3.5% in personal loan segments.

The report shows that the total lending size in Indian market in March 2021 was Rs 157 lakh crore. Retail and commercial hold 49% each in the total share. Microfinance accounts for the rest 2%.

In the last few years all retail, microlending and commercial lending have grown by 91%, 157% and 93% respectively, also despite the second wave when it continued to grow.

report shows how growth rate of retail or personal loans segments was 11.2% in July 2021, higher by 220 basis points than what was seen in July 2020.
(With Inputs from TOI)

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