Mumbai: India’s borrowers are getting ever younger, with more people taking out their first loans in their mid-20s, a new study showed.
People born in the 1990s and are currently in their early to mid-20s or early 30s took their first credit product at 23, according to a study of 37 million consumers by financial products marketplace Paisabazaar. Among these consumers, 22% took their first personal loan, and 24% took a credit card before turning 25.
In contrast, those born in the 1980s and now in their early to mid-30s or early 40s accessed credit for the first time at an average age of 28, while those born in the 1970s, currently in their early to mid-40s or early 50s, took their first loans at an average age of 38. The study results point to an increasing acceptance of credit among the young, in contrast to how their elders borrowed only for necessities. Outstanding bank loans to individuals have touched ₹ 47 trillion, accounting for 32% of total bank credit, as per data from the Reserve Bank of India (RBI).
Bankers have often said that the rise in unsecured credit — a category within the universe of retail loans — is not just because banks are pushing them but also because there is an increasing demand and comfort among consumers to borrow.
“The age at which consumers are taking credit is decreasing rapidly. Not only are consumers more comfortable with credit, they have more choices in the retail credit market,” Radhika Binani, chief product officer of Paisabazaar, said in an interview.
This, Binani said, is because youngsters are willing to finance large purchases on equated monthly instalments (EMIs) and are taking personal loans for travel, smartphones and gadgets. “There is demand as well as supply of loans in the market right now. The proliferation of buy-now-pay-later (BNPL) players has also led to more credit penetration in the personal loan space,” she said.
The study said borrowers graduate from one credit product to another, starting with two-wheeler loans and credit cards at the median age of 28, before moving to personal and consumer durables loans later and finally buying a home at 33. Salaried customers used these products mentioned above at a slightly younger age than self-employed. For instance, the median age for taking a home loan by a self-employed customer is 34, two years after that of a salaried customer.
Interestingly, although the report found some disparity when it came to the median age of first credit between salaried and self-employed segments, it said there was no visible difference between consumers from metro and smaller cities.
“We found both metro and non-metro consumers access to credit across products at a similar age. For instance, the average age for opening the first two-wheeler loan account is 28 for both metro and non-metro consumers, and the average age for taking the first personal loan and the consumer durable loan is 29, which is also similar for both groups,” the study said.
The rise in unsecured loans — credit cards, personal loans, and buy-now-pay-later loans — has made the regulator sit up and take notice. The Reserve Bank of India recently expressed concerns about the brisk growth in personal loans, an unsecured category. The primary difference between a secured and an unsecured loan is that while secured loans are backed by collateral, unsecured loans are not, making recoveries more difficult during defaults. Some large banks have also said they are watching the small-ticket personal loan space.
Asked if the customer data analysed by Paisabazaar is showing an increase in delinquencies of personal loans, Binani said at the moment, data does not show any sign of stress in this loan category.