Unsecured loans seen key to meeting retail credit demand in India

Indian Express

4 days ago

Unsecured loans given by fintech firms will be instrumental in meeting demand for retail credit in India over the coming years, with the absence of collateral for many households that are in the 'early stages of the asset formation cycle' making it unlikely that secured loans will be able to completely fulfill the rising demand.
'Today, only 65 per cent of India's personal bank credit is secured, compared to 90 per cent in the US. Fortunately, India's robust credit bureau data ecosystem has enabled unsecured lending to thrive in recent years,' Boston Consulting Group (BCG) and QED Investors said in their Global Fintech Report 2025, released Monday.
As per the report, Indians' demand for consumer loans is rising rapidly due to robust economic growth – India's GDP expanded by a faster-than-expected 7.4 per cent in the final quarter of 2024-25 – and 'changing cultural attitudes toward debt'. Demand for loans from the middle class is also expected to rise in tandem with the segment itself, which is projected to make up 40 per cent of the population by 2031 from 31 per cent at present, the report said. This is already reflected in data – according to credit information company TransUnion CIBIL, 61 per cent of fintech customers were less than 30 years of age compared to 36 per cent for the rest of the industry.
To be sure, growth in unsecured loans has slowed appreciably in the last couple of years following tightening of regulations by the Reserve Bank of India. As on April 18, while overall bank credit was up 10.3 per cent year-on-year, credit card outstanding and the 'other personal loans' category – both of the unsecured variety – were 10.6 per cent and 9.0 per cent higher, respectively. These figures are sharply lower than where they were before the RBI took action on November 16, 2023 to dampen what it termed as 'very high growth' in certain segments: as on November 17, 2023, banks' credit card outstanding was 34.2 per cent higher and 'other personal loans' were up 24.3 per cent.
Amid the tightened regulatory norms that asked lenders to set aside greater capital than before for consumer loans, excluding certain types such as housing and education, among others, Indian fintechs have continued to grow, albeit at a slower pace.
In terms of live unique customers, fintech firms saw a growth of 40 per cent in 2023 and 15 per cent in 2024 compared to 16 per cent and 9 per cent, respectively, for the industry, TransUnion CIBIL data showed. These firms are particularly dominant when it comes to small loans and were responsible for nearly nine out of every 10 loans of less than Rs 50,000 that were made in October-December 2024.
While BCG and QED Investors said in their report that 'demand for unsecured credit remains' in India, the latest quarterly results for some of the country's most prominent players in the space are not encouraging.
In the quarter ended March 2025, Paytm distributed personal loans to the tune of Rs 1,422 crore, down 19 per cent from October-December 2024, as its lending partners tightened risk policies. 'Personal credit, unless something bigger changes, we will not see much larger growth,' Founder and Chief Executive Officer Vijay Shekhar Sharma said in a post-earnings analyst call on May 6, 2025. Paytm is not alone, with Mobikwik posting a 41 per cent fall in digital lending disbursals in FY25 after it discontinued its Zip buy-now-pay-later product in December 2024 'due to low lender appetite'.
According to BCG and QED Investors' report, lending 'remains a significant opportunity' for fintechs as they only account for around 3 per cent of global lending revenues of $2 trillion. And if unsecured personal loans are excluded, the penetration by fintechs is less than 1 per cent, with banks at an advantage due to the access they have to low-cost funds in the form of deposits.
'…very few fintech lenders have truly weathered a complete credit cycle; in that sense, the industry is still untested,' the report said.