Young first-time borrowers drive the growth of personal loan segment

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The personal loans market has seen substantial growth over the past four years and this could be attributed to short-term low-value credit availed by young borrowers under the age of 25. In terms of disbursals, between FY17 and FY21, personal loans have grown by around 2.3 times in value and 3.8 times by volume, according to a Times of India report.

As per analysis carried out by lenders, a majority of these borrowers are availing of a loan for the first time. Around 65% of the two-wheeler loan seekers were first-time borrowers while for consumer durables like refrigerators or washing machines it was 35%, the report added.

Growth in small-ticket personal loans

Between FY17 and FY21, the average ticket size of personal loans contracted by 40% from Rs 2.4 lakh to Rs 1.5 lakh. For non-banking lenders, this is a positive sign as sizes of loans have gone down, while the volumes of loans surged.

During the same period, small-ticket Personal Loans (STPL) below Rs 1 lakh, which is a part of the personal loan segment and is driven primarily by Non-Banking Finance Companies (NBFCs), have grown by over 11 times in volume and by threefold in terms of disbursements. Currently, these STPL borrowers account for half of all the personal loan accounts in India.

The outstanding portfolio of small-ticket personal loans with lenders has gone up to Rs 39,700 crore in March 2020 from Rs 26,700 crore in March 2019, clocking 48% growth in one year. However, in FY21, the outstanding loans grew by just 3.6% and stood at Rs 41,200 crore, while the number of loans and accounts grew by 19% to approximately 2 crores.

Incidentally, this segment is witnessing the highest stress in terms of repayment. As per a CRIF High Mark Credit Information Services report, for STPL loans, 8.8% of borrowers were unable to make their payments on time as compared to the personal loan segments, where the number stood at 3.5%.

As of March 2021, the total size of the Indian lending market stood at Rs 157 lakh crore, out of which 49% each is accounted by retail and commercial, while microfinance accounts for the remaining 2%.