Young Borrowers Emerging as a Leading Consumer Segment in India’s Retail Credit Market
· Credit growth in India remained robust despite uncertain global macroeconomic factors
· Younger consumers continued to drive credit demand
· Consumers in previously unserved and underserved geographies increasingly embraced credit, made possible by digital adoption
Mumbai, India 2nd February, 2023 – TransUnion CIBIL today released findings from the latest edition of its Credit Market Indicator (CMI)* report, which shows that credit demand in the third quarter ending September 2022 remained robust, with a corresponding increase in originations as lenders continued to provide credit opportunities for millions of consumers across India. Consumption-led lending fueled growth amid positive lender sentiment, with credit performance showing consistent improvement year-over-year (YoY).
The CMI, which provides India’s credit industry with a reliable and contemporary benchmark of retail lending health, reached a level of 100 in September 2022, with younger consumers driving demand and lenders catering to the supply of credit to these consumers. The latest CMI reports that, for the first time, consumers from the 18-30 year-old age group accounted for the largest proportion of inquiries—a measure of consumers applying for new credit— in the quarter ending September 2022. This trend is underlined by rapid growth in consumption-led credit products like credit cards, consumer durable loans and personal loans.
“The fact that 43% of retail credit inquiries were made by consumers in the 18-30 year old age group, compared to 38% in the same quarter in 2021, and 33% in the year before, indicates a major milestone in the evolution of India’s credit market, which now has stronger participation of younger consumers in the credit ecosystem,” said Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL. “Increased access to credit opportunities for younger borrowers has direct correlation to improvement in the quality of life and financial empowerment of India’s youth, who are the drivers of the country’s economic engine.”
The CMI is a comprehensive measure of data elements that are summarized monthly to analyze changes in credit market health, and are categorized under four pillars: demand, supply, consumer behavior, and performance. These factors are combined into a single, comprehensive indicator, and pillars can also be viewed in more detail individually. The latest CMI of 100 underlines the steady growth in India’s robust retail credit market, despite the uncertain macroeconomic factors such as inflation and interest rates that are negatively affecting economies in developed and developing markets around the world.
Chart 1: Monthly CMI (September 2020 to September 2022) i
i When selecting certain variables, year-over-year (YoY) movements are analyzed to remove the effects of seasonality. The increase in April 2021 CMI was temporary and driven primarily by an exponential increase in inquiries and originations in April 2021 compared to a lower base of April 2020. Inquiry and origination volumes increased YoY by 8.5 times and 5.2 times respectively in April 2021.
ii The Sept 2022 CMI value is provisional and subject to revision as additional data are reported to the TransUnion CIBIL credit bureau.
Powered by digital channels, lenders driving growth across geographies and consumer segments
The most demanded credit products in the third quarter ending September 2022 were personal loans, followed by credit cards. Inquiry volumes for personal loans increased by 109% YoY, compared to a growth rate of 91% in the same quarter in 2021, while inquiry volumes for credit cards increased by 102% YoY, compared to a growth rate of 33% in the corresponding quarter one year before.
Demand and supply of consumption-led credit products are intrinsically digital in construct. Lenders are swiftly embracing digital processes to reach consumers across India’s geography, providing them access to credit through digital channels.
Analyses of the CMI at a geographic-level shows that credit reach has expanded in regions that were historically underserved. For instance, Uttar Pradesh has shown the strongest improvement in credit health with a CMI value of 102, an improvement of 19 points YoY. Overall loan originations of retail loans in Uttar Pradesh comprised just over a quarter (26%) that were provided to new-to-credit (NTC) consumers. Credit penetration** in Uttar Pradesh is steadily increasing, reaching 13% in the quarter ending September 2022 from 11% during the same period in the previous year. Uttar Pradesh’s share of consumer durable loans has grown to be 9% of all loans of this type across India, which is an increase of five percentage points compared to the same quarter in 2019.
Borrower profiles shift across age groups and location
A continued feature of the retail credit evolution has been increased credit penetration. Over the last three years, between September 2019 and September 2022, credit penetration has improved across age groups. Consumers in the 18-30 years age group who have availed at least one credit product increased from 14% to 19%; in the 31-45 year age group, it increased from 26% to 35%; and from 23% to 32% among the 46+ year cohort.
From a location perspective, most inquiries (31%) still come from metro areas, but this proportion is slowly declining. Conversely, the number of inquiries emanating from rural areas has increased by one percentage point each year, from 20% in September 2020 to 22% of all inquiries in September 2022. Inquiries from urban and semi-urban areas have remained consistent at 21% and 26% respectively over the last three years.
“Growth and demand continue to come from younger consumers, and those who have historically been unable to experience the benefits of financial inclusion due to their location, or their lack of connectivity,” Kumar said. “This is also likely due to an improvement in economic activity that has resulted in a continued growth trajectory for credit demand across India, which is currently at a three-year high.”
Credit supply continues to grow in line with the growth in demand, with semi-urban and rural consumers accounting for 56% of originations, and younger consumers (18-30 years age group) accounting for 37% of originations – an increase of six percentage points YoY.
Analysis of the latest CMI also shows a marked improvement in borrower profiles, with nearly one-third (32%) of consumers holding a prime*** credit score, up four percentage points from the same period in 2021. Over the same time, 38% of near-prime consumers improved their status to prime in Q3 of 2022.
Importantly, while credit demand and outstanding balances increased, credit performance has remained strong, with balance-level delinquencies improving YoY in September 2022 across all major credit products. This is a clear indicator of sustainable and profitable growth for lenders.
YoY Growth in Outstanding Balances (September 2022)
Loans Against Property
Two Wheeler Loan
Consumer Durable Loan
“It is encouraging to see how innovative solutions made possible by technology are extending financial inclusion to diverse populations across the country, particularly in areas that previously were less able to access financial services and credit solutions,” concluded Kumar.
* The TransUnion CIBIL Credit Market Indicator (CMI) is an evolving model which is regularly reviewed to ensure the most relevant variables and their relative weighting are selected to best chart the credit health of India’s lending market. When selecting certain variables, year-on-year movements are analyzed to remove the effects of seasonality.
** Credit penetration is the percentage of credit active population to the total adult population.
*** Credit Tiers based in CIBIL Score range: subprime: 300-680, near Prime: 681-730, prime: 731-770, prime plus: p771-790, super prime: 790+.