Personal loans are always the first choice among borrowers when it comes to battling a financial crisis. A large number of people have been taking personal loans, be it for a medical emergency, for day-to-day expenses or to make a big-ticket purchase. It is an appropriate choice to get funds without much hassle.
According to a report by credit bureau CRIF High Mark, among the various retail asset products, personal loans have seen some of the most dramatic changes in terms of the product design and customer segment. They have also witnessed most of the disruption caused by FinTechs and the adoption of technology by incumbent lenders.
Some of the key findings from the report stated personal loans demand is largely being driven by millennials and young borrowers in the age group 18-30 years with an increase in share from 27 per cent to 41 per cent in annual originations in the last 2 years. Borrowers <35 years have been the most active in borrowing small ticket personal loans with an increase of 12 per cent in volume share in annual originations in the last 2 years. Mature customers >36 years, with greater stability in their incomes to afford other forms of secured loans such as home loans, vehicle loans, etc. have been observed to demand lower proportions of personal loans in their credit portfolio. However, in FY 2020-21, disruptions due to COVID-19 have led to an increase in the share of mature borrowers, while younger borrowers have demanded a lower volume of personal loans. The pandemic has been observed to have had a reverse effect on borrowings with an increasing proportion of >35 years borrowers in originations in FY 2020-21 (till August).
CRIF High Mark MD and CEO Navin Chandani, says “The number of Personal Loans disbursed has grown by 140 per cent in last Financial Year and the major growth driver has been the small ticket personal loan segment (>Rs 50,000). Small ticket personal loan is expected to keep growing in the coming years as Fintechs, NBFCs, and Banks focus on creating frictionless financial solutions that cater to the credit needs of the digitally savvy millennial customers.”
The report also stated borrowers with less than Rs 3 lakhs annual income has continued to increase from 53 per cent as of March 2018 to 86 per cent as of March 2020, reducing only marginally to 78 per cent as of August 2020.
Here are some of the key highlights of the report on personal loan;
– NBFCs and neo-age lenders (FinTechs) are increasingly targeting young, low income, digitally savvy customers who have small ticket and short-term credit needs, and no or limited credit history customers. These people are generally avoided by the incumbents because of their high perceived risk.
– Small ticket personal loans are considered as personal loans of ticket size less than Rs 50,000 and have been observed to drive volumes by as much as 162 per cent Y-o-Y, as of March 2020.
– As of March 2020, active loans grew rapidly, at nearly 60 per cent, much faster, compared to previous years.
– While there is growth in the portfolio, the report states, the average ticket size has reduced continuously over the last 2 years, reducing by 18 per cent Y-o-Y by March 2020. As of Aug 2020, the average ticket size increased by 5 per cent over March 2020.
– The share of personal loans of less than Rs 50,000 ticket size has increased nearly 5X in a span of 2 years, observed at FY 2020 end.
– NBFCs including FinTechs are doing more and more small ticket personal loans business, offering a variety of personal loans to customer segments who may not qualify for personal loans via traditional lenders as well as tailored offerings to the changing preferences of customers.
– Public sector banks continue to dominate the landscape of the personal loan by value, with a share of nearly 40 per cent as of Aug 2020, offering credit to their captive customer base, including in tier II and III cities. In terms of value market share at the end of FY 2020, there is no significant shift in the last 2 years for NBFCs.
– Public sector banks and private banks, largely disbursing high-value personal loans or pre-approved loans to other customer segments who may not be banking with NBFCs, have a larger share in the number of disbursements.
