The pandemic had caused a shift in the borrowing behavior of Indian consumers, in the form of a heavy rise in smaller-sized loans meant for personal consumption, including health-related needs. Plus, NBFCs (Non-Banking Financial Companies) have made it much easier than before to take a personal loan with online applications. Hence, the past 3-4 years have seen a great increase in the amount of small-ticket personal loans, as per data released by CRIF High Mark, a credit bureau.
The number of personal loans has tripled between FY 2017 and FY 2021 as per the data. As of March 2021, the personal loan book stands at Rs. 644.6 Lakh Crores. An interesting aspect to note here is that as the number of loans shot up, the per-loan size reduced equally quickly in the same period. The average personal loan ticket size has shrunk by 40% from Rs 2.4 Lakhs in FY 17 to Rs 1.5 Lakhs in FY 21.
This is largely due to NBFCs pushing small-ticket personal loans, i.e. those in the range between Rs 2,000 and Rs 50,000 to young, millennial consumers of India. Their personal loans online with attractive personal loan interest rates have made things a lot easier for borrowers. A good 54% of small-ticket personal loan consumers in FY 21 were below the age of 35. To go into further details, consumers aged less than 25 years made up for 22.8% of the loans with a ticket size <Rs 10,000 and 15% of the loans with a ticket size between Rs 10,000 and Rs 25,000.
From The Expert
“The credit landscape in India is ever-evolving and has witnessed changing consumer preferences, shift in demand towards smaller ticket loans, ease of access to credit, increased usage of digital platforms and entry of non–traditional lenders in the ecosystem to name a few,” said Navin Chandani MD and CEO, CRIF High Mark.
What are Delinquencies?
While this spike continues, the number of delinquencies in the small-ticket personal loan segment has also been going up.
Delinquency refers to a situation where you are in arrears for loan repayment. If you are past the due date of your loan repayment, you are said to be delinquent in market-speak. If the arrears are not updated by you within a specific time frame, it leads to a situation called default.
A major reason for the growth in delinquencies is the disruption caused by Covid-19 and its consequent economic effects on people’s incomes, thereby affecting their ability to pay loans back. The moratorium announced by the RBI was also controversial, and it cannot be concluded whether it helped borrowers or not. In the 30 to 180 days repayment category, the delinquency rate was 8.8% as of March 2021, as compared to a rate of 3.5% for the overall personal loan category.
As easy as taking personal loans online has become with affordable personal loan interest rates and other perks, do ensure that you have the capacity for repayment. Especially in the case of small-ticket personal loans, you need to be careful and not get overconfident due to the ticket size.