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Synopsis

• During the fiscal years 2017 to 2023, personal loan credit experienced robust growth of almost 1.5 times the overall credit growth observed in both Banks and Non-Banking Financial Companies (NBFCs). Within personal credit (which typically signifies consumption loans), unsecured personal loans outpaced the overall expansion of the personal loan book and constitute nearly one-third of the total personal loan segment loans. This trend has been further facilitated by the advent of Fintech and Digital channels, contributing to increased origination volumes. The emphasis on smaller ticket-size loans by NBFCs has been a significant driver of volume growth in the unsecured personal loan segment.

• High growth in unsecured personal loans is driven by a multitude of factors with some of these factors being structural in nature, and hence, going forward, a relatively higher growth rate is likely to continue. However, the recent RBI notification, aimed at deterring high consumer credit growth, is expected to impact the momentum in growth in the immediate to near term.

• Although the asset quality has remained stable, there is a need for vigilant monitoring, particularly on small ticket size loans; furthermore, given that each player focuses on specific sub-segments, this may lead to divergent credit cost trends in the unsecured retail portfolio of these players

Personal Credit Growing at 1.5X Overall Credit

The overall credit combined for Banks and NBFCs saw a CAGR of 12% during FY17 to FY23 and stood at Rs.170.5 lakh crore as of Mar’23. During the same period, the personal loan book (including all retail for NBFCs) growth stood higher with a CAGR of 19%. In absolute terms, personal loan credit by banks and NBFCs has almost tripled in the past six years and stood at Rs.51.7 lakh crore forming 30.3% of the overall loan book as of March 31, 2023, as against Rs. 18.6 lakh crore or 21.5% of the overall loan book as on March 31, 2017. Thus, the rate of growth of personal loan books (which typically signifies consumption loans) is almost double of the rest of the banking sector lending (business lending)

Chart 1: Overall Credit Market Size (Credit of Banks+ NBFCs)

Chart 2: Overall Credit Market Size for Personal Loans (Credit of Banks+ NBFCs)

Unsecured Personal Loan Growth Outpacing Overall Retail Loan Growth

The growth of unsecured personal loans (including Credit card receivables, Consumer durable loans and Other personal loans) in banks from March 2017 to March 2023 stood at CAGR – 21.0 % outpacing the personal loan growth which exhibited a CAGR of 19% during the same period. Unsecured personal loans account for almost 1/3rd of overall bank’s personal loan credit of ~Rs. 41 lakh crores as of March 31, 2023.

Chart 3: Unsecured Personal Loan (Banks)

Several factors have contributed to the substantial increase in the demand for unsecured personal loans, encompassing demographic shifts, the formalization of the economy, elevated purchasing power, the evolution and prominence of FinTechs, widespread access to the Internet/broadband and feature phones, the adoption of digital payment systems, the influence of India stack and information collateral, and broader coverage of credit bureaus, etc.

The convergence of technology and finance has reshaped the lending landscape in India, making personal loans more accessible and convenient for a larger segment of the population, thereby contributing to the growth of the

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