Small loans for personal loans soar, but not without the risk of default
Given how easy it is to get a personal loan made possible by fintech non-banking companies, this lending segment has seen tremendous growth over the past 3-4 years, the data release from credit bureau CRIF High Mark shows.
The number of personal loans granted per year more than tripled between FY 2017 and FY 2021. The total stock of personal loans is ₹644.6 lakh crore as of March 2021 according to CRIF data.
Interestingly, the loan volume shrank just as quickly over the same period with the rapid increase in loan volume in this segment. The average personal loan ticket size has decreased by 40% from Rs 2.4 lakh in FY17 to Rs 1.5 lakh in FY21.
In recent years, Non-Bank Financial Institutions (NBFCs) have aggressively pushed small, short-term unsecured loans to young consumers, primarily driven by the huge growth of small-ticket loans in the area of ₹2,000-Rs50,000.
The share of small loans in the personal loan pie is increasing
Small-ticket personal loans (STPL), which are essentially loans below ₹1 lakh in value, shone the brightest with a whopping 11.5x growth in the number of annual loans between FY17 and FY20.
The loans listed below within the small loans category ₹10,000 have grown 20 times in just four years.
NBFCs have driven this growth through loan offerings like Buy-Now-Pay-Later (BNPL) and free EMI on all types of consumer goods sold in the open air.
Data from CRIF shows that smaller credit ticket sizes are dominated by NBFCs in both volume and value metrics. By fiscal 2017, public sector banks accounted for the largest share of STPLs at almost 57% in both volume and value, while NBFCs accounted for 20.6% for the volume measure. As in the final quarter of FY2020, 90.3% of total STPLs in terms of volume and 68.2% in terms of total loan value come from NBFCs. The share of PSBs decreased in volume and value to a low 2.6% and 13.5% respectively in FY 2020.
No price to pay for guessing consumers which age group is driving this growth. About 54% of STPL borrowers in FY21 were under 35 years of age. To break it down further, 22.8% of the loans with a ticket size of less than 10,000 rupees and 15% of the loans with a ticket size of 10,000 rupees. ₹25,000 have been made available to borrowers under the age of 25.
“The credit landscape in India is constantly evolving and has changing consumer preferences, a shift in demand to smaller ticket credits, easier access to credit, increased use of digital platforms and the entry of non-traditional lenders into the ecosystem, to name a few call, experienced. “said Navin Chandani MD and CEO of CRIF High Mark.
At the same time, defaults in the STPL segment have also increased as Covid-19 has adversely affected the borrower’s income and thus the ability of the borrower to repay the loan. The default rate for STPLs in the 30- to 180-day payment period was 8.8% on March 21, compared to 3.5% for the entire personal loan segment.
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