?? Rising Loans & Credit Cards in India: Growth, Trends & Hidden Risks! ????

India's financial landscape is undergoing a significant transformation, marked by a notable surge in loans and credit card usage. This trend reflects the evolving aspirations of consumers and the dynamic shifts within the banking sector.

Personal Loans: A Dominant Force

As of June 2023, personal loans have emerged as the largest segment in bank credit, constituting 49% of total borrower accounts and accounting for 30% of the outstanding non-food credit. Between 2015 and 2023, this sector experienced a compounded annual growth rate (CAGR) of 17% in outstanding amounts and 15% in borrower accounts.

Credit Cards: Milestones and Growth

The credit card industry achieved a significant milestone in the financial year 2023-24, surpassing 100 million cards in force with the addition of over 16 million new cards. This expansion was accompanied by a 22% increase in transaction volume and a 28% rise in transaction value. Projections indicate that the number of credit cards could reach 200 million by FY 2028-29.

In March 2024 alone, credit card spending surged by approximately 10.07% to ?1.64 lakh crore from ?1.49 lakh crore in February, driven by year-end financial activities and festive season sales.

Shifts in Borrowing Behavior

Recent studies highlight a shift in borrowing purposes among Indian consumers:

• Consumer Durables: Loans for items like smartphones and home appliances soared to 37% in 2024, up from 1% in 2020, indicating a focus on technology and home improvement.
• Entrepreneurial Ventures: Business-related loans increased to 21% in 2024 from 5% in 2020, reflecting a growing entrepreneurial spirit, supported by government MSME credit schemes and subsidies.
• Home-Related Loans: Borrowing for home renovation and construction grew to 15% in 2024 from 9% in 2022, driven by desires for improved living conditions and long-term investment.

Regulatory Oversight and Future Outlook

The Reserve Bank of India (RBI) has expressed concerns over the rapid growth in unsecured lending, particularly for consumption purposes, as household debt to GDP reached a record 40%. In response, the RBI has raised risk weights for personal loans to mitigate potential risks.

While the growth in retail lending has moderated, delinquencies in personal loans have increased, raising concerns about asset quality. Analysts predict a rise in delinquencies for India’s shadow banks, leading to increased credit costs. Regulators aim to prevent a financial bubble that could harm the lending system further.

In summary, India's lending landscape is expanding, driven by consumer demand and evolving financial behaviors. However, balancing growth with prudent lending practices remains crucial to ensure sustainable economic development.