Chandigarh: India’s retail credit growth continued to moderate in the quarter ending December 2024, particularly among New-to-Credit (NTC)1 consumers. This was most evident for consumption-led credit products originated by NTC consumers, which saw a 21% year-over-year (YoY) decline in loan originations, compared to a decline of 2% for consumers with existing credit. Consumption-led products are defined as credit cards, personal loans and consumer durable loans.
Originations are a measure of new accounts opened and are driven by both consumer demand and lender supply. Lenders’ cautious approach to the origination of consumption-led credit products disproportionately affected NTC borrowers because 40% of NTC borrowers choose consumption-led products as their first foray into formal credit.
These trends highlight the need for focused lender strategies to expand credit supply to this segment and were some of the findings in the TransUnion CIBIL Credit Market Indicator (CMI)2 report for the quarter ending December 2024.
The CMI is a comprehensive measure of data elements that are summarized monthly to analyse changes in credit market health, categorized under four pillars: demand, supply, consumer behaviour, and performance. These factors are combined into a single, comprehensive CMI indicator, and pillars can also be viewed in more detail individually. A higher CMI reading indicates that the credit market health is generally improving, while a lower reading indicates a decline in credit market health. The CMI for December 2024 was 97, lower than 103 in December 2023 and the lowest since December 2021.
“The acquisition strategies adopted by lenders in response to risk-adjusted returns for unsecured lending products have disproportionately affected the New-to-Credit segment, which represents first-time borrowers,” said Mr. Bhavesh Jain, the MD and CEO of TransUnion CIBIL. “We have seen that sustainable credit growth can be achieved among NTC consumers by lenders who use advanced information analytics and technology-based solutions.”
In the quarter ending December 2024, the CMI for credit supply declined to 91 from 95 the same period the year before. A slower growth rate in originations across products and continued decline in originations to NTC consumers drove this change. Home loan and credit card originations declined YoY in the three-month period ending December 2024, while the growth rate for other retail loan products, while positive in the most recent quarter, was at a slower rate than in the same quarter in 2023.
In the quarter ending December 2024, the share of total loan originations by NTC consumers decreased to 17% from 21% in December 2023. The decline in the share of NTC consumers in loan originations is consistent across key product segments.
Younger generations formed the largest cohort of NTC consumers, with Gen Z (born in 1995 or later) comprising 41%. The share of women borrowers stood at 37% of NTC originations, which was higher than the share of women among Existing to Credit (ETC) borrowers at 27%. Of NTC consumers, 32% were from rural geographies, while 23% of ETC consumers were from rural geographies. The higher percentage of women among NTC originations compared to ETC originations, along with the notable presence of NTC consumers from rural areas, highlights efforts by lenders to reach and support these important demographics. These efforts demonstrate a commitment to fostering financial inclusion and ensuring that more individuals have the opportunity to participate in the formal credit system.
Lenders providing NTC borrowers with their first loan or credit facility can leverage this base to create higher lifetime value, making it a profitable proposition to drive sustained growth. An analysis of TransUnion CIBIL data on consumers who opened their first ever credit product in FY2022-2023 showed that one in three NTC consumers availed a second credit product in the subsequent 12 months. Of the consumers availing the second loan, 44% chose to do so with the same lender.
“India’s youth, women, and consumers in rural areas represent a large share of first-time credit seekers. For India to achieve meaningful, sustainable, and inclusive economic growth, it is imperative to include these consumers into the formal lending ecosystem. Expanding their access to credit directly correlates with improved quality of life and financial empowerment of these individuals,” said Mr. Jain.
Slow Growth in Credit Active Consumers
The continued moderation in credit supply over the last four consecutive quarters led to the YoY growth in credit-active consumers slowing down to 9% in December 2024 from 16% in December 2023. According to World Bank data, as of December 2024, India’s credit-eligible population – consumers aged 18-80 years – stood at approximately 1,036 million, yet only 27% (around 277 million) use formal credit facilities. Approximately 451 million Indians have limited or no formal credit facilities 3.
TransUnion CIBIL’s insights show that Gen Z forms a significant share (34%) of India’s credit eligible population, but displays the lowest credit penetration at 16%. Among consumers with any credit history ever, the majority of these consumers were credit underserved.
