Low-cost loan disbursements have increased fivefold in 2 years
More and more borrowers are opting for personal loans to finance their consumer needs, not for emergencies. The trend is more pronounced in low-income families, who use loans of less than ??50,000.
The loan disbursement below ??The size of 50,000 banknotes has increased fivefold in the past two years, according to a report from CRIF India, which operates the CRIF High Mark credit bureau. The growth of low-cost personal loans is mainly driven by non-bank financial corporations (NBFCs) and fintech startups, he added.
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“NBFCs and neo-age or fintech lenders are increasingly targeting low-income, digitally savvy young customers who have low-cost, short-term credit needs, and no or limited credit history – customers who are generally avoided by incumbents because of their perceived high risk, ”he said.
In March, 50% of small loans were in the amount of ??5,000 or less. “This is a strong indication that the concept of fund financing and payday lending is catching up,” the report adds.
Personal loans demand is largely driven by millennials and young borrowers between the ages of 18 and 30. In the past two years, about 41% of personal loan borrowers were between the ages of 18 and 30. Two years ago, 27% of borrowers were in this age group.
The proportion of loans granted to those with incomes below ??3 lakh has grown over the past three years, reaching 69% of new loans in FY20. NBFCs have increased their share of loans to this segment.
Due to covid-19, however, the financiers who were driving the growth of personal loans have slowed down to lend to this segment. In August, the overall personal loan portfolio of all lenders was ??5,07,684 crore, only increasing 0.57% from March, due to disruption caused by covid-19.
From March onwards, NBFC’s market share continued to grow, doubling their market share in value over the last two fiscal years. They held a 43% market share at the end of FY20 against 23% in FY18. In August, their market share was 42%. In contrast, the share of public sector banks increased from 40% in FY18 to 24% in FY20. NBFC’s market share by value reached 18% in FY20, compared to 15% in FY18.
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