Small-ticket-sized loans grow rapidly in post-Covid. What to expect ahead?

In post-Covid, there has been impressive growth in small ticket-sized loans, personal loans, and consumer durables loans.  (MINT_PRINT)

While the Coronavirus pandemic did put the world at a standstill for a periodic time in 2020, however, it only led to impressive growth in small ticket-sized loans, personal loans, and consumer durables loans. Between FY19 to FY22, these unsecured retail loans have grown rapidly at around 25%, as per the data. The growth in these unsecured retail loans is likely to continue to pick up momentum going forward.

According to data from Bain & Company, credit cards showed resilience with a 19% CAGR between FY19 to FY20, while personal loans recorded a CAGR of 29%, and consumer durable loans recovered to pre-pandemic levels and grew at 13% CAGR.

The data further revealed that semi-urban markets are the primary source of growth for unsecured retail lending products — with about 32% CAGR in Tier 4 regions versus around 18% CAGR in Tier 1 regions over the past three fiscals. Notably, credit cards grew at 12% CAGR in the small-ticket-size segment with no real impact on asset quality and expansion primarily driven by semi-urban regions.

Furthermore, personal loans registered a whopping 120% CAGR in the small-ticket-size segment (over $650) — with 85% of disbursements to consumers who are below 35 years of age. Here as well, the primary growth drivers are semi-urban regions.

Meanwhile, small-ticket consumer durable loans witnessed an 11% CAGR in the past three fiscals. More than 70% of disbursements are to the age group below 40 years, while 36% of disbursements were between the 30-40 years of age group and 37% to less than 30 years of age group. This highlighted a significant demand for consumption financing by millennials and members of GenZ.

Prithvi Chandrasekhar, President – of Risk & Analytics, InCred said, “All categories of consumption finance have been growing at over 20%. This includes personal loans and consumer durable loans, as well as credit cards, gold loans, and BNPL.”

He added, “The growth in consumer durable loans is a little more eye-catching because the count of customers is large, and the loan ticket sizes are often small (say, less than 5,000). But regardless, this trend is real. It is going to continue well part 2023 into at least 2033.”

Chandrasekhar believes that the underlying macro-story is strong. He added, “Indian households don’t have anything like the access to consumer finance that their peers in other countries have. We’re a young country with a fast-growing, urbanising economy. In general, young people with good prospects are both credits hungry and creditworthy.”

Also, he added, “There still is a long way to go. Financing affordable housing, electric vehicles, health care procedures (in a chronically under-insured country), K-12 school education, and car maintenance all promise to materially improve the lives of hundreds of millions of Indians. Sure, there will be hiccups along the way, but this growth story isn’t going to stop anytime soon.”


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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