Are personal loans growing fast in India

Personal loans have grown as consumers’ favourites due to their flexibility. An individual availing personal loan does not have to specify its purpose. These are usually unsecured loans; that is, no collateral is needed to get these loans, making it less risky for the applicant; the loans are usually disbursed quickly and provide a large borrowing limit. Are personal loans growing fast in India?

The last decade has seen growth in India’s banking and finance sector. Even during the pandemic, the growth rate hasn’t dropped but has rather seen an incline. One of the most growing and popular choices of financial instruments is personal loans.

Why are personal loans gaining popularity?

One of the primary reasons is the flexibility it provides the individual and is an unsecured loan; it is readily available to individuals meeting the eligibility criteria of the financial institution from which they are borrowing.

With no limit on the purpose of usage, flexible borrowing limit, competitive rates of interest in the market, flexible repayment period, flexible, equated monthly instalment (EMI) amounts, personal loans are becoming the personal favourites of people nowadays.

Digitisation of the financial market has made personal loans more accessible to the masses. Also, the ever-increasing gap between expenditure, income, and wants, these loans come in and bridge the gap considerably to meet the immediate needs. From medical expenses to home renovations, from travel plans to weddings, personal loans have come to the rescue for anything and everything.

How has the growth in personal loans been?

The statistics on personal loans for 2019-2020 are as follows.

According to the Reserve Bank of India (RBI) report, personal loans account for 28 per cent of bank credit as of 2020.
Though the growth in personal loans was 28 per cent compared to the 35.5 per cent in the financial year 2018-2019, the origination volume of these loans increased a whopping 134 per cent Year-on-Year.
Quarter three of 2019 witnessed a 133.9 per cent increase in new personal loan accounts.
In quarter two of 2019, personal loan balances had a growth of 35 per cent Year-on-Year, that of Non-Banking Financial Companies (NBFCs) grew by 51.4 per cent, balances of Public Sector Undertakings (PSUs) grew by 31.5 per cent, and the same of private banks (PVTs) by 35.1 per cent.
Origination balances of personal loans increased in quarter two of 2019 by 30.8 per cent year-on-year. The growth in the same in the PSUs was 28.7 per cent, in PVTs was 33.1 per cent, and in NBFCs was 33.7 per cent.

As of March 2021, the personal loans sector witnessed a growth of 13.5 per cent Year -on -Year. Also, as per the report of the RBI, October 2021, personal loans had had tremendous growth in the past decade.

As of March 2021, personal loans’ share of outstanding bank credit has witnessed an increase from 16.4 per cent to 25.9 per cent.
Personal loans, which constituted about a quarter of bank loans in September 2020, were found to increase to 27 per cent by the end of September 2021, which is about Rs. 29.2 lakh crore.
The overall personal loans outstanding in the banks over the preceding six months of October 2021 grew by Rs. 73,000 crores, thus expanding the portfolio of personal loans by Rs. 29.18 lakh crore.

Growth in Personal Loans in the Pandemic

The pandemic witnessed growth in personal loan owing to various factors. The loss in employment combined with increased health care expenses and digitisation of both schools and offices have increased most individuals’ expenditure way more than their incomes.

Thus, people turned to personal loans to fund these. 37 per cent of the 28 per cent growth in personal loan accounts were the individuals who took these loans to fund their medical expenses. More individuals opted for this path with personal loan interest rates going down due to the pandemic.

The last few years have seen personal loans as the saviours to many individuals.