The last few years have been rather tumultuous for the banking and financial services sector of India. The barrage of the NBFC crisis, loan defaults by big borrowers, and global economic slowdown has led lending in India through some very rough times. As 2020 has come, though, this is the perfect time to have another look at the Indian loan and credit markets.
Some of the key trends that have emerged are strong growth in Personal Loans and Credit Cards, more female borrowers leading to a diverse market, and business loans continuing to be a growth driver for credit products of banks and NBFCs. In contrast, Secured Credit continues to perform at marginal levels with Home Loans and Car Loans, both shedding growth numbers.
Here is a sneak peek on unsecured lending trends for the last financial years and let’s assess how these patterns will re-define standards for 2020.
In Focus: Personal Loans in Financial Year 2019-2020
India is a strong market for Personal Loan lenders. If we go by some of the studies reported recently, borrowers in metro cities have an average Personal Loan ticket size of Rs. 2.61 Lakh. For non-metros, this number rises to Rs. 2.79 Lakh, primarily because of the really large size of the non-metro markets.
Some of the noteworthy interest rate trends for unsecured loans with topmost lenders are as follows:
- HDFC Bank continues to be one of the most customer-friendly lenders at this time. HDFC Personal Loan Interest Rates range from 10.75% to 13.45% p.a. For employees of special companies, who drive a large volume of their business, they are offering processing fees as low as Rs. 999. For all other customers, the fee goes up to anywhere between 1% to 2.5%. In an unprecedented move, they have waived off pre-closure charges for customers with salary more than INR 75,000 and loan amount up to Rs 10 Lakhs. Otherwise, the regular 4% charge is applicable. No part payment is allowed.
- ICICI Bank also continues attractive lending options. Their interest rates ranged between 13.75% to 17.5% p.a. The minimum processing fee is 0.5% to select company employees. Otherwise, it is between 1.5% to 2.25%. The pre-closure fee is very high, at 5%. No part payment allowed here either.
- SBI is one of the leaders in lending space in India. The interest rates begin from 10.50%, subject to eligibility. Flat 1% processing fee is levied, and the prepayment fee ranges from 2% to 5% depending upon customers. Part-payment not allowed here either.
Availing unsecured loans has been easier than ever these days. You can also consider applying for loans on Credit Cards. It is swift and cost-effective for urgent needs.
- Bajaj Finserv is a consumer goods focused lender. You can avail of Bajaj Finserv Personal Loan in range of 15 to 17% per annum. Most of their customers come from non-special company category, and thus they have a large customer base compared to most other institutions. They are offering zero loan prepayment charges because of the nature of their lending business, and they also allow part payment of their loans. They also charge an industry-standard processing fee of 2% on loan applications.
Premium Cards are now becoming highly sought after in the Indian market and growth in entry-level Credit Cards that was fueled by the emergence of online shopping portals and heavy credit card discounts offered by shopping websites seems to have subsided as people are now becoming more comfortable with using other modes of online payments.
The demand for premium Credit Card products is driven by customers in the 26 to 35 years of age bracket who have a lot of disposable income and are about to start their married life where prestige and perks of premium cards will help them a lot. They have driven premium Credit Card market growth by as much as 43.38% and can be seen as one of the key drivers of unsecured Business Loans as well, with many taking up entrepreneurial activities.
Female applicants have finally started to make their mark in the unsecured loans market. This was a category whose rise was inevitable, and the time has come for Indian women to shape the credit market of tomorrow. Female borrowers have an average personal ticket size of Rs. 2.55 Lakhs as per a media report. Women borrowers have caught up with male borrowers at their Rs 2.67 lakh average ticket size. Till now, women continue to maintain their ticket-size lead of Home Loans at 25.64 Lakhs proving that women are looking at making more long-term financial commitments as well as the fact that joint property purchase continues to attract a lower cost of registry.
In the Credit Card market, female applicants are also growing very strong. They applied for 49.07% of fuel Credit Cards, 21.99% Travel Credit Cards, and an easy to predict 32.78% of premium Credit Card demands.
All in all, unsecured lending is the platform on which India will rely for growth in the coming months as per TransUnion CIBIL Market Insights! Loan inquiries and origination in 2019 was 30% higher than in 2018. This continues to be a very bright point in the otherwise bleak credit product market in India, especially the secured ones whose performance may remain subpar for some more time.
With average loan amount of Rs 20,000 or lesser, lower cost of lending and operations and faster time to process, online lenders have carved a niche in small ticket lending at a time when banks are still playing in the INR 3 lakh plus market bracket and the traditional NBFCs bringing their ticket size lower from INR 2 lakh to a very low of just INR 50,000.
Another point to be noted is that a large chunk of the Indian population remains untapped by the credit market, especially in rural and semi-urban areas. Fintech lenders who are riding the wave of smartphone and 4G penetration are projected to be among the first to reach these people and considering their low ticket-size and low-cost overhead; the conservative rural borrower will be a match made in heaven for them, particularly because rural areas are among the key drivers of digital payments in the country.
The year 2020 will see unsecured loans reach more and more people in India!