Home motor trade Low-cost personal loans are on the rise, but not without the risk of delinquency

Low-cost personal loans are on the rise, but not without the risk of delinquency


Considering the ease of borrowing a personal loan made possible by non-bank fintech companies, this lending segment has seen tremendous growth over the past 3-4 years, according to data released by credit bureau CRIF High Mark .

The number of personal loans issued per year more than tripled between fiscal year 2017 and fiscal year 2021. The total portfolio of personal loans amounts to ??644.6 lakh crore in March 2021, according to CRIF data.

Interestingly, as loan volumes in this segment skyrocketed, loan sizes shrank just as rapidly over the same period. The average size of personal loan notes 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 encouraged small, short-term unsecured loans to young consumers, mainly driving the phenomenal growth of low-cost loans in the range of ??2,000 to 50,000 Rs.

The share of low-cost loans in the personal loan pie is increasing

Low Cost Personal Loans (STPL), which are basically loans below ??1 lakh in value, shone the brightest, witnessing a huge growth of 11.5 times the number of loans taken per year between FY17 and FY20.

In the small loans category, the bagged loans below ??10,000 have grown more than 20 times in just four years.

NBFCs have spurred this growth through loan offerings such as Buy It Now and Pay Late (BNPL) and the No-Fee IME on all kinds of consumer durables sold under the sun.

CRIF data shows that lower loan note sizes are dominated by NBFCs on volume and value metrics. Until fiscal year 2017, public sector banks accounted for the largest share of STPLs with nearly 57% in volume and value, with NBFCs at 20.6% in volume. As in the last quarter of fiscal 2020, NBFCs generated 90.3% of total STPL in terms of volume and 68.2% in terms of total loan value. The share of PSBs decreased to 2.6% and 13.5% in volume and value, respectively, in fiscal year 2020.

No prizes for guessing consumers in which age group is behind this growth. About 54% of STPL borrowers in FY21 were under 35. To break it down further, 22.8% of loans with ticket size less than Rs 10,000 and 15% of loans with ticket size of Rs 10,000- ??25,000 were granted to borrowers under the age of 25.

“The credit landscape in India is constantly changing and has seen a shift in consumer preferences, a shift in demand towards smaller loans, ease of access to credit, increased use of digital platforms and entry. of non-traditional lenders in the ecosystem to name a few, ”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 disrupted income and hence the borrower’s ability to repay the loan. The default rate for STPLs in the 30 to 180 day late payment bracket was 8.8% as of March 21, compared to 3.5% for the entire personal loan segment.

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