India's total lending growth decelerated in FY25, while borrowers increasingly opted for larger loans, according to the How India Lends FY25 report from CRIF High Mark. The report outlines the most important changes in borrower behaviour, risk trends and market share of banks, non-banking financial companies (NBFCs) and fintechs.
Though the aggregate value of the loans increased, the speed of new loan disbursements slowed down. This suggests lenders are becoming more cautious and have a desire for high-value credit from consumers.
Bigger Loans See Higher Demand
The overall analysis reflects an increasing trend towards high-ticket loans. Customers increasingly opted for high-ticket loans, such as car loans of Rs 10 lakh and home loans of Rs 75 lakh, over personal loans. For instance, almost half of the total car loans were in the Rs 10 lakh - 20 lakh and above range.
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Conversely, demand for small-ticket loans dipped. Lenders also turned more cautious because of inflation, affordability issues and increased risks in the low-value segments.
Home and Personal Loan Growth Eases
Growth in home loans dipped to 2.60 per cent year-on-year (y-o-y) in FY25. This was because of high property prices and overall economic stress. Public sector banks raised their market share in this segment, while private banks lost theirs.
Personal loans also fell 2.60 per cent in value. Borrowers continued to borrow more, especially above Rs 10 lakh. The Rs 1 lakh - 5 lakh segment, though, experienced increasing stress, with more delinquencies in repayment being reported by most lenders.
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Credit Card Originations Fall Sharply
Originations of credit cards fell by 26.40 per cent in FY25. Following two successive years of high growth, the fall implies tighter credit selection and lower demand. Private banks also lost 1.70 per cent market share in the new issue of credit cards.
Car, Two-Wheeler Loan Growth Drops
Growth in car loans eased to 5.20 per cent in FY25 from 15.30 per cent in FY24 and 37.6 per cent in FY23 on account of poor consumer off-take and a high base of prior vehicle sales.
Public-sector banks handled risk well, but there was a rise in repayment delinquencies in subsequent stages among private banks.
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Two-wheeler loan growth fell to 10.60 per cent from 25.10 per cent during the previous year. Low credit borrowers experienced higher repayment stress. According to the report, all lenders reported an increase in early and mid-cycle delays.
Consumer Durable Loans Show Modest Growth
Value of consumer durable loans increased by merely 3.30 per cent, but the volume of loans increased by 11.50 per cent. Consumers took smaller loans, and the average ticket size went down, perhaps because prices increased and incomes remained stagnant. NBFCs again dominated this segment with a share of more than 80 per cent in the total value of loans.
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Most of them were in the Rs 10,000-50,000 bracket, although mid-value loans are becoming increasingly prevalent.
Microfinance, MSME Lending Gets Picky
Microfinance lending decreased by 13.90 per cent in gross loan portfolio (GLP) mostly due to lenders being hesitant, and scaling down exposure in risky regions. Stress in early stages increased, though repayment risks for the long term were high. The biggest decline in microfinance GLP was witnessed by Tamil Nadu and Karnataka.
For micro, small, and medium enterprises (MSMEs), loan value increased by 4.50 per cent, but the number of loans decreased by 11.40 per cent. This indicates lenders were lending fewer but more expensive loans. The average size of the loan rose from Rs 7 lakh - 7.6 lakh. Private banks did some improvement in some risk parameters, but NBFCs remained under stress in mid-stage stress levels.
Changes in Market Share and Lending Strategy
The report also identifies a change in market share. Public-sector banks and NBFCs picked up in a number of loan categories, whereas private banks lost share in a few categories. Lenders put more focus on risk control, and there was success in bringing down early-stage delinquencies. Nevertheless, delay in repayments, particularly in small-ticket and subprime segments, remained a matter of concern.
FY25 Characterised by Recalibration in Lending
According to the report, FY25 was a year of re-calibration for both lenders and borrowers. Borrowers moved with the changing economic environment by choosing higher loans, while lenders stiffened credit policies and concentrated on risk management.
These alterations are likely to have an impact on how lenders state their credit strategies and policies in FY26, particularly relating to managing portfolio quality and nurturing credit growth in priority sectors, the report adds.
