Small-ticket personal loans under Rs 10,000 had greater delinquency rates than bigger loans, with peak defaults happening among borrowers who accepted loans between December 2023 and June 2024, according to statistics from the September quarter of FY25. NBFCs dominated new loan originations in this group, lending to borrowers outside of the top 100 cities.
The Fintech Barometer (vol II) by CRIF High Mark and the Digital Lenders Association of India revealed a 44% increase in delinquencies among personal loan borrowers who took out loans between December 2023 and June 2024. NBFCs increased their share of the personal loan industry in terms of both value and volume. The increase in small-ticket loans reflects attempts to promote financial inclusion via digital lending.
In the unsecured business loans (UBL) and loan against property (LAP) segments, demand for loans under Rs 10 lakh remained consistent, accounting for a sizable chunk of volume share. Cities outside the top 100 accounted for 42% of value and 44% of volume in originations, indicating increased participation from smaller urban and rural locations.
The lending environment showed a heterogeneous risk profile. High-risk and very high-risk loan portfolios fell, despite an increase in thin-file applicants and those without credit ratings. While risky, these groups are critical for increasing financial inclusion by introducing underprivileged people to the formal lending system. Delinquency rates across geographies remained consistent.
"Adverse macroeconomic trends have led to slower growth in new loan originations and rising delinquencies after Mar 2024," according to Subhrangshu Chattopadhyay, the full-time director at CRIF High Mark. He referred to the RBI's Financial Stability Report, which was released on December 30, 2024, and showed increased household debt, with super-prime borrowers borrowing for asset creation and subprime borrowers borrowing for consumption. These trends, together with regulatory efforts, highlight the need for long-term growth in unsecured lending.
The research emphasized the need of tracking borrower score patterns over time rather than depending just on point-in-time data. Borrowers whose credit scores fell between June and December 2023 were classified as greater risk, stressing the importance of ongoing risk assessment. UBL highlighted resolving blind spots in analyzing business owners' commercial commitments as key to improving credit decisions.
