As global economies grapple with exponential growth and development, India’s banking sector has seen a significant surge in credit operations. The destination of these funds, amounting to trillions of rupees, has now become a topic of interest and study. Where is the enormous volume of bank credits, specifically personal loans, absorbed in the country’s financial ecosystem? The answer will help us understand the health and functioning of the economy more comprehensively.
Personal loans are unsecured loans provided by banks without any collateral. Their acceptance in India has soared dramatically due to flexible terms, quick disbursal, and minimal documentation. As per the MoneyMood retail credit trends report by BankBazaar, outstanding personal loans totalled Rs 45.51 lakh crore as of October 2023.
A significant portion of these credits is directed towards consumption-based loans like vehicle loans, credit card dues, loans against FDs, gold, shares and bonds, education loans, and housing loans. Half of the personal credit pie, accounting for 47.11% or Rs 21.44 lakh crore, is attributed to housing loans. This shows a growing extension of credits supports the robust housing market in India, driven by competitive interest rates and government incentives.
Another dominant category in personal loans is related to vehicle loans. The expanding access to credit for vehicle loan purposes reflects the rising accessibility of vehicle loans, mirroring economic growth, competitive lending markets, low-interest rates, technological advancements simplifying the application process, evolving lifestyles demanding personal transportation, and innovative financing models. The personal credit pie allocation of 12.15% (Rs 5.53 lakh crore) is attributed to vehicle loans.
Apart from this, credit card usage is also on the rise. The expanding credit card usage reflects shifting consumer habits toward cashless transactions, convenience-driven spending, and the allure of rewards and benefits. It also signifies increased trust in financial systems, widespread merchant acceptance, and evolving financial literacy. This trend demonstrates a preference for flexible payment options and the convenience of credit cards in daily transactions, shaping modern spending behaviours. Credit card usage contributes to 5.29% (Rs 2.4 lakh crore) of personal credit pie.
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This way, the rise in consumer-driven credits exemplifies India’s growing consumer-oriented market and the propensity of Indian citizens to live an upgraded lifestyle. It is a strong indicator of the robust economic activity on the ground.
Another category of personal loans is related to educational loans. The expanding access to credit for educational purposes reflects the premium placed on higher education in Indian families. It denotes that individuals leverage the power of credit to elevate their skills and career prospects.
Medical loans also have a vital slice of the personal loan pie, representing escalating healthcare costs and a lack of sufficient insurance coverage for many Indians. This aspect of credit destination indicates a critical area where policy intervention can drastically impact the citizens’ financial well-being. Such loans, including other personal loans, collectively contribute to 26.66% of the personal credit distribution.
Thus, one unravels a nation’s economic and social landscape in understanding the destination of bank credits. In India, the expenditure patterns underlying trillions of rupees in outstanding personal loans provide a snapshot of household-level economic activity, aspirations, challenges, and a vision for the future.