Indians are taking more personal loans, buying consumer goods on credit, says report

• Indians are taking more personal and consumer durable loans, boosting the overall growth of retail credit in the country.
• Personal and consumer durable loans almost doubled between FY19 and FY22, despite a lull for two years due to Covid-19.
• Tier 2 and lower cities and districts have joined the party, with home loans seeing a surge in these areas due to WFH.

Indians are taking more personal loans and buying consumer products on credit than ever before, according to a new report by credit bureau CRIF High Mark.

Personal loans, consumer durable loans and business loans carry relatively higher risk for lenders, when compared to home and auto loans. Despite this, personal and consumer durable loans grew at a high CAGR of 25% between FY19 to FY22 – almost doubling in this period, according to a report by Kotak Institutional Equities.

Overall, the total lending market in India stood at ₹174.3 lakh crore in FY22, with the retail segment accounting for 48.9% of it.

While the overall lending market grew 11.1% in FY22, it has capped off the sluggish growth in FY20 and FY21 – two years highly impacted by Covid-19 and the lockdowns.

“FY22 witnessed tremendous growth in new loan originations across retail, microfinance and commercial loans. This resurgence in the credit landscape signals economic recovery and is extremely encouraging,” said Sanjeet Dawar, Managing Director, CRIF High Mark.

Economic recovery sounds good, so why are personal loans surging?

An economic recovery sounds like a positive development, but the surge in personal and consumer durable loans might also be hinting at another problem.

A surge in these two loan segments suggests people are conserving cash, so they are taking loans and buying products on EMIs to ensure they have enough liquidity.

On a positive note however this also suggests two other things – there is a revival in consumer demand, and that people are optimistic about their cash flows, giving them the confidence that they can repay loans on time.

“Early warning indicators are at a comfortable level today across all loan 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 to be concerned today,” the Kotak report added.

This means that both lenders and borrowers are placed securely, and overdue loans are within a comfortable range.

Revenge shopping is adding to the surge – and Tier 2+ cities are joining the party

Another factor at play is revenge shopping – lockdowns and Covid-19 restrictions resulted in muted festivities for two years, but everything has opened up in 2022. Experts believe online festival sales could be 28% higher than pre-Covid levels, which suggests that people are itching to shop.

Joining the party are people from Tier 2, 3 and 4 cities.

“We are forecasting 4x growth in the number of online shoppers from 2018. This growth has been driven by accelerated digital adoption and increasing penetration in Tier 2+ cities,” said Sanjay Kothari, associate partner, Redseer Strategy Consultants.

Better yet, this surge is not limited to personal or consumer durable loans – home loans, which have much higher ticket sizes and are relatively less risky than personal loans, have also seen an increase in T3 and T4 districts.

According to a report by SBI, T3 and T4 districts account for 36% of fresh disbursals in FY22, up from 32% in FY19 – thanks to a boom in Work from Home, freelance jobs, and a renewed focus on work-life balance.

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