Personal Loans in India: Big Shifts in Interest Rates, Ticket Sizes, and Access
The world of personal loans in India is experiencing a transformation. This article delves into a comprehensive study analyzing trends between December 2018 and September 2023, revealing crucial shifts in interest rates, ticket sizes, and accessibility across different sectors and demographics.
Interest Rates on the Rise, Especially for Housing:
Housing loan borrowers are bearing the brunt of rising interest rates, evident in their shift from the 6-9% range in 2018 to the 9-11% range in 2023. This can be attributed to the implementation of the EBLR, leading to automatic interest rate adjustments. Meanwhile, consumer durable and credit card loans remain at the highest interest bracket, exceeding 11%. Fortunately, education loans witnessed a welcome decrease, moving from above 11% to the more affordable 9-11% range.
Downsizing Loans, Uptrending Ticket Sizes:
The retail segment is witnessing a clear preference for smaller loans. The “above Rs 1 crore” bucket saw a notable decline, dropping from 59.8% in 2018 to 52% in 2023. Despite this shift, the average ticket size across all sectors surprisingly increased from Rs 39 lakh in 2018 to Rs 36,59,370 in 2023. Housing loans retain the top spot in the Rs 10-50 lakh bracket, followed by education loans. Interestingly, vehicle loans reflect a growing demand for higher-value options, with the Rs 10-50 lakh bucket witnessing a rise in its share. Credit card loan limits, however, saw a general decrease, possibly due to banks adopting a cautious approach toward upgrades.
Metro Dominance, Rural Reach on the Rise:
Metropolitan areas remain the hub for personal loans, holding the majority share (52.3% in 2023). Urban and semi-urban regions follow closely behind. Although housing loans are still largely concentrated in metropolitan areas, their share has slightly dipped. Notably, consumer durable loans exhibit a significant surge in these areas, jumping to 65% in 2023 compared to 2018. Education loans continue to be prominent in both metropolitan and semi-urban areas, while rural regions have the lowest share. Interestingly, “other personal loans” are showing increased accessibility in metropolitan and urban areas, gradually reaching into rural regions as well.
Intriguing Ticket Size Paradox:
Despite the trend towards smaller loans, the average ticket size across all sectors and regions has increased. This could be due to a combination of factors, such as inflation driving loan amounts upwards or a rise in demand for larger loans within the “smaller” categories. Notably, the average ticket size is lower in metropolitan areas compared to rural areas, presenting a unique finding worthy of further exploration.
A Transformed Landscape:
Personal loans in India are undergoing significant changes, with rising interest rates, a shift towards smaller loans, and a growing demand for higher-value options across certain sectors. Metropolitan areas remain the primary borrowers, but “other personal loans” are gradually reaching rural regions, potentially indicating improved financial inclusion. This study provides valuable insights into the evolving landscape of personal loans, paving the way for further research and understanding of this dynamic market.