In a stellar growth, the personal loan credit by banks and NBFCs has almost tripled in the past six years to Rs 51.7 trillion.

This formed 30.3 per cent of the overall loan book as of March 31, 2023 as against Rs 18.6 trillion or 21.5 per cent of the overall loan book as on March 31, 2017, said a report by rating agency CareEdge.

Advertisement

Significantly, the report showed 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.

During the fiscal years 2017 to 2023, personal loan credit grew almost 1.5 times the overall credit growth observed in both Banks and NBFCs.

The report said within personal credit, unsecured personal loans outpaced the overall expansion of the personal loan book and constitute nearly one-third of the total personal loan segment loans at Rs 41 trillion as of March 31, 2023.

This trend has been further facilitated by the advent of Fintech and Digital channels, contributing to increased origination volumes.

“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,” said the CareEdge report.

For NBFCs, loans with a ticket size below Rs 1 lakh constituted over 85 per cent of loan originations by volume in FY23. Loans with ticket size below Rs 50,000 hold the majority share in origination volume, witnessing a more than two-fold increase in origination value in this segment over the last two fiscals that ended March 2023.

The report highlighted that the transformation in consumer behaviour has emerged as a pivotal driver behind the upsurge in loan unsecured personal loan demand, particularly within consumption-driven growth patterns.

A perceptible shift in mindset is particularly evident among the younger demographic, who now embraces the idea of borrowing for consumption, contrasting significantly with perspectives from the past decade.

Recently, the RBI has decided that the consumer credit exposure of NBFCs – outstanding as well as new – categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans, shall attract a risk weight of 125 per cent. NBFCs’ loan exposures generally attract a risk weight of 100 per cent.

The Central Bank also announced the increase of risk weights on exposures of SCBs to NBFCs by 25 per cent points, over and above the risk weight associated with the given external rating, in all cases where the extant risk weight as per external rating of NBFCs is below 100 per cent.