India Personal Loan Market Outlook to 2030

India Personal Loan Market Overview

• The India Personal Loan Market has experienced notable growth, this is reflected by it reaching a valuation of USD 101.3 billion by portfolio outstanding in 2023. This growth is fueled by low interest rates and increasing borrowing limits.
• The Indian personal loan market is highly competitive, with several key players dominating the space. Some of the major players include: HDFC Bank, ICICI Bank, State Bank of India (SBI), Axis Bank and Bajaj Finserv. These institutions have leveraged their extensive branch networks and digital capabilities to capture significant market shares.
• In 2023, SBI and Paytm collaborated to offer instant personal loans to customers through the Paytm platform. This partnership leverages Paytm's large user base and SBI's financial services to provide quick and easy access to personal loans, reflecting the trend towards digital lending.

India Personal Loan Market Analysis

• The rapid adoption of digital lending platforms has revolutionized India's personal loan market. Factors like rising smartphone, internet and digital payments penetration are driving this growth. India's MSME credit gap is estimated at $305 billion, indicating immense untapped potential for digital lending.
• Personal loans have facilitated financial empowerment by providing easy credit access for individual needs. From FY2020 to FY2023, personal loan originations grew 2.1x by value and 2.5x by volume, driven by fintech lenders offering small-ticket, short-term loans.
• Personal loan demand is concentrated in metropolitan cities like Mumbai, Delhi, and Bangalore, which account for a substantial share due to higher incomes, greater financial literacy, and better access to banking services. According to an RBI report, these metropolitan regions dominated personal loan disbursements in 2023.

India Personal Loan Market Segmentation

• By Loan Type: India Personal Loan Market is segmented by Loan Type into Secured Personal Loans, and Unsecured Personal Loans. In 2023, unsecured personal loans held a dominant market share under the segmentation by loan type, primarily due to their ease of access and lack of collateral requirement. The growth of digital lending platforms, which primarily offer unsecured loans, has also contributed to this dominance.

• By Borrower Type: The personal loan market is segmented by borrower demographics - salaried individuals, self-employed professionals, and pensioners. In 2023, salaried individuals had the highest market share, driven by their steady income and higher creditworthiness. Lenders often target salaried borrowers due to their reliable repayment capacity and lower risk profile.

• By Region: India Personal Loan Market is segmented by Region into North, South, East, and West. In 2023, the Western region, particularly Maharashtra, had the highest market share under the regional segmentation. This dominance is due to the region's high population density, greater financial literacy, and the presence of major financial institutions.

India Personal Loan Market Competitive Landscape

•  HDFC Bank: India’s leading private sector banks, headquartered in Mumbai, the bank offers a wide range of banking and financial services, including retail banking, wholesale banking, and treasury operations. In 2023, HDFC Bank entered into a strategic partnership with leading fintech company Cred to offer pre-approved personal loans to Cred's high-credit-score members. It also launched an AI-powered personal loan approval system.
• ICICI Bank: One of India’s largest private sector banks. Headquartered in Mumbai, the bank provides a comprehensive range of financial products and services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital, and asset management.
• SBI: The largest and one of the oldest commercial banks in India. Headquartered in Mumbai, SBI operates a vast network of branches and ATMs across India and has a significant international presence. The bank offers a wide range of banking and financial services, including retail banking, corporate banking, and treasury operations. In 2023, SBI partnered with Paytm to offer consumer UPI payments.

India Personal Loan Industry Analysis

India Personal Loan Market Growth Drivers

• Digitalization of Financial Services: The convenience of digital KYC, instant loan approvals, and disbursements has significantly enhanced customer experience, making personal loans more accessible. in the fourth quarter of FY2023-FY24, personal loan advances amounting to $789 million were disbursed among various types of consumers in India through digital panels.
• Increasing Consumer Expenditure: This rise in consumer spending reflects higher purchasing power and a growing tendency to finance personal needs through loans. As consumers allocate more of their budgets towards non-essential goods and services, they are increasingly relying on personal loans to meet these expenditures.
• Emergence of fintech companies and digital lenders: Platforms like CoinTribe, EFUNDZZ, Indifi, and TradeUdhaar are providing digital lending solutions and marketplaces to simplify the loan application process for SMEs. The digital lending space in India is experiencing advancing growth with a cumulative investment of $1 billion since inception.

India Personal Loan Market Challenges

• High Non-Performing Assets (NPAs): One of the significant challenges in the personal loan market is the high level of non-performing assets (NPAs). The high level of NPAs directly impacts the profitability and risk management strategies of lending institutions. This poses a critical concern for the market's stability and growth.
• Potential Asset Quality Concerns: The rapid expansion of personal loans, particularly unsecured loans, raises concerns about asset quality, as a rising share of loans by people with weak earning profiles could lead to loan repayment problems in the unsecured retail lending segment. NBFCs raises concerns about systemic contagion, as vulnerabilities in the NBFC sector could spill over to the banking system.
• Interest Rate Volatility: Volatility in interest rates poses a challenge to the personal loan market. Fluctuating interest rates can affect loan affordability and repayment capacity. In 2023, the RBI increased the repo rate multiple times to combat inflation, leading to higher lending rates for personal loans.

India Personal Loan Market Government Initiatives:

• Pradhan Mantri Jan Dhan Yojana (PMJDY): The 2014-launched PMJDY has vastly improved financial inclusion by opening over 47 crore new bank accounts, covering a significant portion of India's adult population. This has boosted financial literacy and access to formal banking, driving personal loan demand in underserved segments.
• Digital India Initiative: The Digital India initiative, launched in 2015, has promoted the digitalization of financial services, making personal loans more accessible. This digital push has enabled lenders to offer faster and more efficient loan services. This includes increasing internet and broadband connectivity, with over 800 million internet subscribers as of 2023.
• Pradhan Mantri Mudra Yojana (PMMY): The 2015-launched PMMY provides small loans to non-corporate, non-farm micro/small enterprises. This supports micro-entrepreneurs and small businesses, indirectly boosting the personal loan market by improving financial inclusion and credit access. Under PMMY, loans totaling $2.75 trillion have been extended since inception.

India Personal Loan Market Future Outlook

In 2028, the expansion of India Personal Loan Market will be driven by increasing financial inclusion, the penetration of digital financial services, and evolving consumer preferences towards unsecured borrowing.

Future Market Trends

• Increasing Role of NBFCs: By 2028, NBFCs will disburse INR 2.5 trillion in personal loans annually, catering to diverse financial needs. This will make personal loans more accessible and attractive, driving market growth. The co-lending book of NBFCs is projected to reach ₹1 trillion by June 2024, reflecting significant growth in co-lending arrangements.
• Increased Focus on Credit Risk Management: With the rise in digital lending, there is an increased focus on credit risk management. In 2024, it is projected that 80% of banks in India will have implemented AI-driven credit risk assessment tools. Based on the IDRBT report, in 2023, approximately 490 out of the 700 banks in India had already adopted AI-driven credit risk assessment tools.