- Indians take more personal things and
sustainable consumer loansboosting overall retail credit growth in the country.
- Personal and durable consumer loans almost doubled between FY19 and FY22, despite a two-year lull due to Covid-19.
- Tier 2 and lower cities and districts have joined the party, with home loans seeing an increase in these areas due to the WFH.
Indians take more
Personal loans, durable consumer loans and business loans carry relatively higher risk for lenders, compared to home and auto loans. Despite this, durable personal and consumer loans grew at a high CAGR of 25% between FY2019 and FY22 – nearly doubling over that period, according to a report from Kotak Institutional Equities.
Overall, the total loan market in India stood at ₹174.3 lakh crore during FY22, with the retail segment accounting for 48.9% of it.
While the overall loan market grew by 11.1% in FY22, it capped the slow growth of FY20 and FY21 – two years heavily impacted by Covid-19 and lockdowns.
“FY22 saw phenomenal growth in the number of new loans issued to individuals, microfinance, and commercial loans. This resurgence in the credit landscape signals an economic recovery and is extremely encouraging,” said Sanjeet Dawar, Managing Director,
The economic recovery sounds good, so why are personal loans increasing?
An economic recovery appears to be a positive development, but the surge in consumer durable and personal loans could also point to another problem.
An increase in these two lending segments suggests that people are saving money, so they take out loans and buy products on EMIs to ensure they have enough cash.
On a positive note, this also suggests two other things: there is a recovery in consumer demand and that people are optimistic about their cash flow, giving them confidence that they can repay their loans in time.
“Early warning indicators are now at a comfortable level across all credit segments. Delinquency levels in high-risk segments like consumer durables, personal loans and credit cards are also at a comfortable level today, indicating no reason for concern today” , the Kotak report added.
This means that lenders and borrowers are in a safe place and delinquent loans are within a comfortable range.
Revenge buys add to the wave – and Tier 2+ cities join the party
Another factor at play is revenge shopping – Covid-19 lockdowns and restrictions meant festivities were muted for two years, but it all opened up in 2022. Experts say online festival sales could be 28% above pre-Covid levels, suggesting people are eager to shop.
People from Tier 2, 3, and 4 towns join in the fun.
“We expect 4x growth in the number of online shoppers from 2018. This growth has been driven by accelerated digital adoption and growing penetration in Tier 2+ cities,” said Sanjay Kothari, Associate Partner , Redseer Strategy Consultants.
Even better, this push is not limited to personal or consumer sustainable loans – home loans, which have much higher ticket sizes and are relatively less risky than personal loans, have also seen an increase in T3 quarters. and T4.
According to an SBI report, T3 and T4 districts account for 36% of new disbursements in FY22, up from 32% in FY19 – thanks to a boom in work-from-home, self-employment and employment. a renewed interest in work-life balance.
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