Loan Originations Decline As Fewer Young Borrowers Take Credit

New originations of loans in India fell to their lowest level in two-years in the March quarter of FY 2024-25  according to credit bureau TransUnion CIBIL.

New loan originations refer to the initial disbursement of funds for newly approved loans. As per the credit union the primary cause of the deceleration seen in new loan orginations was a fall in the number of first-time borrowers and a downtrend in young borrowers availing loans.

Credit Market Indicator Shows Drop

The Credit Market Indicator (CMI) that monitors the well-being of India's retail credit market declined to 97 in the quarter ended March 31, 2025. This is the lowest level to which the indicator has declined since the March quarter of 2023.

Fewer First-Time and Young Borrowers

One of the largest drivers behind the downtrend is a decline in New-To-Credit (NTC) borrowers—first-time borrowers taking out a loan. These borrowers, particularly those who are 35 years old or younger, experienced a 3 per cent decline from the same time last year.

The report does not state the current level, but this decline indicates that fewer young people are coming into the credit system for the first time. This category is not only feeling the slowdown—these are a primary driver of the overall decline in loan originations.

Drop in Credit Interest Among Youth

Credit inquiries from those below the age of 30 also reduced. Their proportion of total credit inquiries dropped to 56 per cent, from 58 per cent last year. This shows that fewer youth are interested in borrowing than they were before.

Lenders Adopt Cautious Approach

A more cautious lending approach by banks and non-banking financial companies (NBFCs) has also played a key-role in causing this downtrend. Lenders have become more selective due to concerns over repayment capacity, especially for small-ticket loans like personal loans or consumer durable loans.

They are usually favored by young borrowers as they generally do not need collateral, have quicker approvals, and are utilised for necessities like purchasing electronics, financing vacations, or covering short-term cash deficits. Industry estimates suggest that the majority of personal loans under Rs 1 lakh are lent to borrowers in the age group of 25–35.

High-Value Loans Show Stable Demand

On the other hand, there are certain segments of the loan market that continued to grow even during the fall. Home loans—in which borrowers typically borrow between Rs 30 lakh to Rs 1.5 crore—continue to reflect a healthy demand in urban markets.

Two-wheeler loans, especially in the Rs 1.5 lakh to Rs 3 lakh segment, also remained steady. This has slightly enhanced the credit market's supply side, and the supply index has climbed marginally from 92 to 93 for the January–March 2025 quarter.

Hope for Recovery Ahead

Though the numbers dipped, there is guarded hope for a recovery in months to come. The Reserve Bank of India (RBI) recently reduced the repo rate by 50 basis points to 5.5 per cent to facilitate credit growth.

Although the cut might stimulate demand for house loans and other high-value loans, recent policy statements have suggested that there is little scope to ease further, as inflation management needs to continue on course. Consequently, more general recovery—particularly among young borrowers and first-timers—could still rely on further stimulus such as better job prospects or specific lending programs.

Until interest rates reduce and lending is made more accessible, the number of new borrowers, especially younger ones, are not likely to pick up. This change will have a longer-term effect on the credit market since fresh demand from new customers is required for enduring growth.