Young adults, below 25 years of age, availing short-term low-value credit, are driving personal loans, which have grown 2.3 times by value and 3.8 times by volume in term s of disbursals from FY17 to FY21. Many of these borrowers are taking a loan for the first time with lenders assessing them using analytics and other digital appraisal tools. In the case of two-wheelers, 65% of borrowers were first-time loan seekers, while it was 35% in the case of those buying consumer durables like refrigerators or washing machines on credit.
For lenders, particularly non-banks, small is beautiful with the size of personal loans shrinking sharply even as volumes of these loans surge. Between FY17 and FY21, the average ticket size of personal loans shrunk 40% to Rs 1.5 lakh from Rs 2.4 lakh. Within the personal loan segment, small-ticket personal loans (STPL—below Rs 1 lakh), which are driven largely by non-banking finance companies, have grown threefold in terms of disbursements and over 11 times in volume in the period FY17 to FY21. These STPL borrowers now account for half of all personal loans accounts in the country.
Credit bureau CRIF High Mark has done a study capturing market trends over five 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 usage of digital platforms and entry of non-traditional lenders in the ecosystem, to name a few,” said CRIF High Mark MD & CEO Navin Chandani.
While lenders are giving out small-ticket loans at a furious pace, the activity has not gained much attention because the overall loan book has not grown a lot since these advances are short-term and small-sized. The outstanding portfolio of small-ticket personal loans with lenders has increased from Rs 26,700 crore in March 2019 to Rs 39,700 crore in March 2020, growing 48% in one year. The outstanding loans grew by only 3.6% to Rs 41,200 crore in FY21. While the value of the loan portfolio has eased in FY21, in terms of the number of loans, accounts have grown 19 % to nearly 2 crore.
Incidentally it is the smaller borrowers who are facing more stress in repayment. According to CRIF High Mark, the STPL loans have 8.8% of borrowers who are not able to make payments in time (31-180 days) as compared to 3.5% in the personal loan segments.
According to the report, the total size of the lending market in India as of March stood at Rs 157 lakh crore. Of this, retail and commercial account for 49% each. Microfinance accounts for the balance 2 %. Over the last five years, retail, microlending and commercial lending portfolios have witnessed an increase of 91%,157% and 93%, respectively Even after the second wave of Covid, personal loans have continued to grow According to a CARE Ratings report, the growth rate of the retail/personal loans segment stood atll.2% and was higher by 220 basis points in July this year when compared with July 2020.