Personal loans are always the first choice among borrowers when it comes to tackling a financial crisis. Many people have taken out personal loans, be it for a medical emergency, daily necessity, or a major purchase. It is a suitable choice for making money without a lot of hassle.
Among the various retail investment products, personal loans have seen some of the most dramatic changes in product design and customer segment, according to a report by CRIF High Mark credit bureau. You have also seen most of the disruption caused by FinTechs and the adoption of technology by incumbent lenders.
Some of the report’s key findings said that consumer loan demand is largely driven by millennials and young borrowers aged 18-30, with the share of annual lending increasing from 27 percent to 41 percent over the past 2 years. Borrowers under the age of 35 have been most active in borrowing small loans, with the volume share of annual lending increasing by 12 percent over the past 2 years. Older customers> 36 years old, whose income is more stable in order to be able to afford other forms of secured credit such as home loans, car loans, etc., have requested a lower proportion of personal loans in their loan portfolio. However, in FY2020-21, disruptions due to COVID-19 resulted in an increase in the proportion of maturing borrowers, while younger borrowers asked for a lower volume of personal loans. The pandemic was observed to have an inverse effect on borrowing, with the proportion of borrowers over 35 years in loans increasing in FY2020-21 (through August).
CRIF High Mark MD and CEO Navin Chandani said: “The number of personal loans disbursed has increased 140 percent in the last fiscal year and the main growth driver has been the small loan segment (> Rs 50,000). Small loan is expected to continue to grow in the years to come as fintechs, NBFCs and banks focus on developing seamless financial solutions that meet the loan needs of digital savvy millennial customers. “
The report also stated that borrowers with annual earnings less than Rs 3 lakhs continued to grow from 53 percent in March 2018 to 86 percent in March 2020, and decreased only marginally to 78 percent in August 2020.
Here are some of the key highlights from the Personal Loans Report;
– NBFCs and Neo-Age Lenders (FinTechs) are increasingly targeting young, low-income, digitally savvy customers who have low and short-term credit needs and have no or limited credit history. These individuals are generally avoided by incumbent providers due to their perceived high level of risk.
– Small-ticket personal loans are considered personal loans with a ticket size of less than 50,000 rupees and the volume has been observed to increase by as much as 162 percent year-on-year through March 2020.
– In March 2020, active loans grew by almost 60 percent, much faster than in previous years.
– As the portfolio grows, the average ticket size has steadily decreased over the past 2 years, up 18 percent year-on-year through March 2020. As of August 2020, the average ticket size increased 5 percent over March 2020.
– The proportion of personal loans with a ticket size of less than 50,000 rupees has almost quintupled in 2 years as measured at the end of fiscal 2020.
– NBFCs, including FinTechs, are increasingly making small loans with personal loans, offering a variety of personal loans through traditional lenders to customer segments who may not qualify for personal loans, as well as bespoke offerings tailored to changing customer preferences.
– Public sector banks continue to dominate the personal credit landscape by value, with a share of nearly 40 percent (as of August 2020), and offer credit for their corporate customer base, including in Category II and III cities. In terms of value market share at the end of FY2020, there has been no significant shift for NBFCs in the past 2 years.
Public banks and private banks, which largely disbursement of high quality personal loans or pre-approved loans to other segments of customers who may not be banking with NBFCs, have a larger share in the number of disbursements.