Instant personal loans have gained huge popularity in India in the past few years. The reason for the growth of small loan apps in the country is the increasing gap between income and expenses coupled with rising aspirations among the Indian populace. Also, factors like job losses and pay cuts due to the Covid-19 pandemic have driven the Indian personal loan market.
In addition, personal loans come with a broad reach and great features that make them easily accessible to the masses of India. Furthermore, the recent reduction in borrowing cost and online availability has positively influenced the personal loan market.
As per the recent RBI updates and reports, the size of personal loans in the total bank credit has grown extensively. With some of the best loan apps in India offering easy and quick small loans, the personal loan sector continues to grow at a robust and steady pace over the past five years.
Some figures showing the growth of personal loan apps in India
- In the personal loan segment, any credit below ₹50,000 is considered a small-ticket personal loan. And the small loans segment has been driving great growth volumes of as high as 162% during 2020 by way of the number of loans disbursed.
- Small-ticket personal loans were not performing well a decade ago, but the loan options are outperforming most lending options today. Being driven by software that fintech institutions and finance companies deploy, they now approve and disburse small-ticket loans based on data analytics.
- The overall size of the small personal loan business can be approximated at around ₹12,000 crores. The bump comes after small loan apps clocked a 77% rise in value compared to a previous financial year, with many app-based lenders entering the market.
- Neo-age lenders and finance companies are increasingly targeting young, digitally savvy, low-income customers with short-term and small-ticket credit needs but having zero or limited credit history.
- The portion of small-ticket loans in all the personal loans disbursed in the last two years has multiplied around five times. While the small-ticket loans accounted for a mere 12.9% of all personal loans disbursed in 2018, they jumped to around 60% in 2020.
- There has been some moderation since 2020, with most types of personal loans growing faster with the use of technology. However, small loans still account for almost half of the new disbursements made.
- Large financial institutions like private banks keep misdemeanours in check with their long processes. As a result, the wrongdoings in the small loan segment are low in banks and financial institutions. However, banks generally extend small-ticket loans to their existing customers with proven credibility and a good track record of cash flow. But unlike banks, loan apps run algorithms and analytics on information gathered from bank statements and social media profiles sent by borrowers, which is less reliable.
- However, India has also seen many apps exploiting personal data and using dodgy recovery practices. And so, RBI was forced to crack down on them and ban some app-based lenders. This has made it difficult for banks and NBFCs to lend with the help of digital platform providers.
- Payday loans are loans that are repaid upon the credit of salary. Payday loan providers charge an extremely high interest rate, going at around 15% per month, allowing lenders to operate at big margins.
- While small loan apps have seen considerable growth in their portfolio, the average ticket size of loans has reduced over the last two years, at around 18% year-on-year by 2020. But since the pandemic, the average size has increased by almost 5%.
- As per the rating agencies, there is no problem to the lenders because of retail loans until now. As per ICRA, the collection efficiency or repayments in loans have remained steady until October 2020. After that, however, the collection efficiency has reduced in comparison with pre-lockdown levels. The repayments are in the range of 81% to 95% across retail loans.
Some highlights indicating personal loan growth in India
Below are some of the highlights that show the growth of personal loans in India:
- Per one RBI report, personal loans accounted for 28% of the total bank credit by 2020.
- The last few years have seen high growth in unsecured lending among youngsters.
- The growth rate is the same for personal loans as well as consumer durable loans. One reason for this growth is fintech lenders providing loans either via partnerships with existing banks or NBFCs. This makes it easier for customers to avail an unsecured loan at affordable costs without visiting the bank.
- Among all the loan accounts, the female borrowers held around one-third of the share in March 2020 compared to around one-fifth share in the last few years.
- While the loan accounts with banks grew by 17.3% in 2020, showing an increase in bank lending last year, personal loans grew by 28% compared to 33.5% growth during the same period the previous year.
- With the increase in the number of loans, a drop is seen in the average ticket sizes for personal loans offered by NBFCs.
- Among the 28% increase in personal loan accounts in 2020, 37% were loan applications from the customers who took a personal loan due to medical and health care emergencies.
- The moratorium period that banks offered is one major factor that helped most of the personal loan borrowers to maintain liquidity of funds while having loans on them.
So, the corona pandemic shook the Indian economy to its core, with millions of individuals going through unprecedented pay cuts and unemployment. However, in such dire circumstances, personal loans proved to be a great saviour for individuals who had medical emergencies or were going through a challenging economic phase.
With some of the best loan apps in India, availing of a loan has become more accessible, faster, and safe than ever. As a result, the demand for personal loans and small loan apps are going to continue to rise in India.
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