Personal Loans on the Rise in India: A Look at the Data and What it Means

Soaring personal loans in India, now a significant portion of total bank credit deployed, raise questions: are they a cause for concern or a hidden opportunity? This article investigates.

In recent days, I have delved into the trends of personal loans in India, intrigued by their individual-centric nature and the insights they offer into behavioral shifts within our economy. These shifts not only reveal significant changes in consumer demand for goods and services but also reflect broader economic transformations. By examining how preferences for certain products and services have evolved, we can gain fundamental insights into diverse aspects of the Indian economy, spanning different geographies, demographic groups, markets, and business sectors. Such analysis is crucial for informing business strategies and guiding policymakers in addressing potential imbalances that could lead to systemic risks or uncover new opportunities. This article will feature a series of charts, mostly derived from my dashboard analyses, that are designed to be self-explanatory, allowing readers to grasp the full narrative without the need to wade through extensive text. So, without further ado, let's dive in.

Personal Loans Overall Trends

Absolute:

The chart below provides a comprehensive overview of personal loans disbursed by Indian banks over the last 15 quarters, juxtaposed against the total bank credit.

From this visualization, it is evident that personal loans constitute a significant portion—35%—of the total credit extended by commercial banks to all sectors. Since Q2 FY21, the amount outstanding on personal loans has nearly doubled, growing at a rate considerably faster than the overall credit, which increased by only 1.6 times. This surge in personal loans in India could signal concerning trends, as a substantial proportion of these funds may be channeled into non-productive assets rather than towards the creation of productive assets.

Percentage of GDP

The chart above has been recalibrated to reflect the percentage of GDP, offering readers a deeper insight into another dimension of the overall financial landscape.

It's noteworthy that the overall bank credit relative to our nominal GDP has increased by 412 basis points. In comparison, the rise in the deployment of personal loans over the same period is slightly higher, at 437 basis points. This comparison underscores the significant growth in personal loan uptake within the same time frame discussed in the previous chart.

Percentage of Total

The accompanying chart provides a comprehensive overview of the changing trends in personal loans in India since the beginning of FY15.

From this analysis, we observe that the overall issuance of personal loans by commercial banks has notably increased, rising from 16.2% to 30.94% since March 2014, and reaching a total of 48.93 lakh crore by December 2023. In contrast, credit extended to the industrial sector has seen a significant decrease, dropping from 42.66% to 23.75% over the same timeframe. Meanwhile, credit to the agricultural sector has remained relatively stable, showing only a slight decline. This reduction in industrial loans, particularly if it affects small and medium-sized enterprises, could be cause for concern, signaling potential challenges in this critical sector of the economy.

Personal Loan Category by Value

An essential dimension to explore is the trends in outstanding personal loans by size. The charts below provide a detailed breakdown of personal loans into various subcategories.

Notably, the preferred loan ticket size has shifted towards the 10-50 lakh category. As of Q3 FY24, loans in this size accounted for Rs 22.4 lakh crore out of a total of Rs 48.9 lakh crore (46%). In the housing sector, loans have predominantly moved into the 10 lakh to 1 crore category, amounting to Rs 20.3 lakh crore of the total Rs 26 lakh crore in this segment (78%). For consumer durables, the pattern has remained relatively unchanged since FY14. Meanwhile, vehicle loans have increasingly fallen into the 5 to 25 lakh category, representing Rs 3.5 lakh crore of the total Rs 4.9 lakh crore (71.4%) outstanding as of 31st December 2023. The education sector has witnessed a significant shift towards higher-value loans, predominantly in the 10 to 50 lakh range, reflecting the rising costs of education in India. This change marks a departure from previous years when loans were typically concentrated in the 2 to 5 lakh range.

Personal Loans Interest Rates Trends

The following charts provide a high-level overview (or consider "show") of how personal loan interest rates have changed compared to other loan categories within this segment.

By analyzing the charts, we can see that a significant portion (or consider "a large number") of personal loans fall within the 8% to 10% interest rate range (amount: ₹27.86 lakh crore). This is considered moderate compared to interest rates for other loan categories in this group.

Top 10 Indian States: Personal Loan Growth (All Population Groups)

The chart examines the growth of personal loans across the top 10 Indian states, encompassing all population groups. Growth is measured as a multiplier against a baseline established in March 2019 (March-19), with states ranked based on their total outstanding personal loan amount. Overall, personal loans in these states have witnessed significant growth compared to the March 2019 baseline (data for September 2023). Diving deeper by loan category, Haryana leads the way in housing loan growth, followed by Telangana, Gujarat, Uttar Pradesh, and Maharashtra. For vehicle loans, Maharashtra has seen the most significant increase since September 2021, with a similar trend observed in other states (details available in the dashboard). When it comes to education loans, Maharashtra, Andhra Pradesh, and Telangana boast the highest growth. Lastly, credit card debt has grown the most in Rajasthan, followed by Maharashtra, with both experiencing a substantial increase compared to the baseline.

Top 10 Indian States: Personal Loan Growth (Rural - Population Groups)

This chart explores the growth of personal loans in rural areas within the top 10 Indian states. Uttar Pradesh stands out with the most significant overall growth and the highest increase in housing loans compared to the baseline. In the vehicle segment, Haryana takes the lead for rural areas. For education loans, Telangana boasts the highest growth. Interestingly, Telangana again leads in credit card debt, experiencing a substantial increase compared to the baseline.

Summary of Personal Loan Trends in India

This article delved into the recent surge of personal loans in India, analyzing the data through various charts and highlighting potential economic implications.

Key Findings:

• Personal loan growth: Personal loans have witnessed a significant rise, nearly doubling since Q2 FY21. This is concerning as it might indicate a shift towards non-productive investments.

• Comparison with GDP: The share of personal loans relative to GDP has grown more than overall bank credit, further emphasizing the substantial increase.

• Loan category trends: The preferred loan amount has shifted towards higher brackets across categories like housing and education, reflecting rising costs.

• Industrial credit: A notable decrease in credit extended to the industrial sector, particularly for SMEs, raises concerns about potential challenges in this crucial area.

• State-wise growth: Personal loans have grown significantly across the top 10 Indian states, with variations by category (e.g., Haryana leading in housing loan growth).

The article emphasized the importance of understanding these trends in order to inform business strategies and guide policymakers in addressing potential imbalances and opportunities.