Increasing Delinquencies in Small-Ticket Personal Loans
MUMBAI: Data for the September quarter of FY25 revealed alarming trends in the personal loan segment, particularly among borrowers of small-ticket loans under Rs 10,000. According to the Fintech Barometer (vol II) by CRIF High Mark and the Digital Lenders Association of India, delinquency rates spiked significantly for borrowers who availed loans between December 2023 and June 2024. This period saw a 44% increase in defaults, painting a worrisome picture of the financial health of borrowers in this category.
NBFCs Lead the Charge in Fresh Loan Originations
One key finding from the report was the dominance of Non-Banking Financial Companies (NBFCs) in extending fresh loans to new borrowers residing outside the top 100 cities. These institutions played a pivotal role in expanding the market for small-ticket personal loans by both value and volume, catering to individuals seeking financial assistance in underserved regions. The rise in loan originations highlighted a concerted effort to promote financial inclusion through digital lending platforms.
Diversification of Lending Landscape
While small-ticket personal loans faced challenges, the unsecured business loans (UBL) and loan against property (LAP) segments remained relatively stable, with steady demand for loans under Rs 10 lakh. Notably, cities beyond the top 100 contributed significantly to the volume and value of loan originations, indicating a growing trend of participation from smaller urban and rural areas. This shift underscored the evolving landscape of lending practices and the need to cater to a diverse borrower base across different geographies.
Challenges and Opportunities for Sustainable Growth
The report shed light on the impact of adverse macroeconomic trends on the lending ecosystem, leading to slower growth in new loan originations and a rise in delinquencies post-March 2024. Subhrangshu Chattopadhyay, whole-time director at CRIF High Mark, highlighted the findings of the RBI’s Financial Stability Report, emphasizing the need for sustainable growth in unsecured lending amidst rising household debt levels. The importance of continuous risk assessment and monitoring borrower score trends over time was underscored to mitigate potential risks and enhance credit decision-making processes in the evolving lending landscape.