Festive Lending Slowed In FY25 Despite Strong Demand In Smaller Cities: CRIF Report

Lending activity in the third quarter of FY25 recorded a slowdown, though credit demand from smaller cities continued to be stronger, as per CRIF High Mark's latest report, How India Celebrates – Festive Lending in India. The report examines consumer credit trends during the third quarter (October–December) of the financial year 2024-25 and spans five key retail loan categories—auto loans, two-wheeler loans, personal loans, consumer durable loans, and home loans.

The volume and value of origination came down or grew at a crawling pace in all but one major lending segment, the data reflects. Personal loans slowed by 6.7 per cent from last year, followed by consumer durables falling 1.9 per cent. Home loan volumes of origination fell by 7 per cent, while its value remained virtually flat with an incremental 0.1 per cent growth. Two-wheeler and automobile loans too exhibited subdued growth. These trends were fuelled, the report found, by tightening liquidity conditions, increased household leverage, and increasing regulatory standards.

Although there was an overall slowdown, small cities, specifically the bottom 100 (BT100) cities, remained instrumental in driving festival credit demand. The cities have accounted for 52.6 per cent of two-wheeler loan disbursements, 41.2 per cent of personal loans, 39.6 per cent of consumer durable loans, and 35.8 per cent of automobile loans in terms of value for the festive quarter.

Reflecting on the results, Sachin Seth, chairman of CRIF High Mark, and CRIF India and South Asia's regional managing director, said the lending sector is making a strategic transition. "While celebratory sentiment continues to drive demand, the move toward responsible and risk-conscious lending is evident. Lenders focus on creditworthy borrowers, PSU banks reinforce their positions in secured products, and NBFCs expand their presence in small-ticket and deep-market segments," he said.

Shift Towards Safer Borrowers

There is a discernible trend in the report of lenders focusing more on lower-risk borrowers. The percentage of originations for New-to-Credit (NTC) customers fell across personal loans, two-wheeler loans, and consumer durables loans during the festival season. It reflects a more risk-averse lending strategy, as institutions shift away from riskier customers and lean more towards known credit profiles.

Public sector banks (PSUs) raised their proportion in secured lending segments like home and auto loans. While non-banking financial companies (NBFCs) dominated the origination volumes in lower-ticket products like two-wheeler, personal, and consumer durable loans, private sector banks saw a fall in value and volume in various loan segments.

Regional and State-Level Trends

The report identifies substantial regional disparity in lending trends. Madhya Pradesh had the highest origination value growth at 8.9 per cent, followed by Uttar Pradesh at 4.9 per cent and Rajasthan at 4.6 per cent. These states were notable for their strong lending activity in the festive quarter.

Conversely, states in the south like Telangana and Karnataka saw a steep fall in origination values, at 10.0 per cent and 8.0 per cent respectively. Andhra Pradesh saw the maximum proportion of unsecured loans at 43.1 per cent, while Gujarat was the lowest at 20.5 per cent. This differential is due to varying economic situations and consumer practices across states.

On an urban level, Delhi NCR stood out to be the leader in absolute origination value. Chennai tallied the biggest percentage of individual loan originations at 36.7 per cent of all its categories included.

A Maturing Credit Market

The latest festive lending report of CRIF High Mark indicates that India's retail credit market is changing. While festive periods historically increase loan demand, this year's patterns indicate a more cautious and risk-evading approach by lenders. Risk management along with demand balance is becoming all the more crucial.

The rising demand for low-risk profiles and the increasing role of emerging cities demonstrate the transformation of the credit ecosystem into one that is more inclusive, resilient, and strategically forward-looking, said Seth.

As festive borrowing remains a consumer sentiment and lender confidence indicator, the FY25 numbers emphasise the need for walking the fine line between growth and caution. With smaller towns continuing to record high demand, they are sure to remain in the focus areas of lenders over the next quarters as well.