Credit Needs

Growing per capita income, financial inclusivity, greater internet penetration and a large credit demand from SMBs is fueling the growth of digital lending in India

- Arjun Yadav

FOR THE FIRST TIME in April this year, credit card dues in India crossed the Rs 2 lakh crore mark, growing 29.7 per cent compared to April 2022. Interestingly, this rise in dues has been at twice the rate of overall bank loans in a year.

The milestone has resulted in commentary from various experts and analysts, with some describing it as a cause of concern and drawing parallels with the financial crisis of 2008 when credit card debt hit a high of 1.2 per cent in the United States, while some believe the increasing usage shows increased use of plastic money for payments and the impact of inflation.

Bankers, however, do not seem to be worried, as card balances stand at 1.4 per cent as a share of overall bank credit and form the third-largest segment among personal loans. Moreover, compared to the 2008 crisis, bankers today are confident about card issuance to creditworthy customers, thanks to data availability through credit bureaus and account aggregators. The point, however, is that credit card remains part of a formal structure where banks have several layers of checks to determine creditworthiness and ability to repay. Beyond this formal structure, India has seen a rapid rise in fintech lending since 2014, where the interest rate ranges from 15.2 per cent to 37 per cent and additional processing charges.

The lending industry continues to evolve with the launch of new models and approaches and is poised to become the most lucrative sub-sector in the fintech ecosystem.

IIFL FinTech, in its latest report, estimates that the book size of the Indian digital lending companies is set to grow from $38.2 billion in 2021 to nearly $515 billion by 2030, registering a 33.5 per cent increase in compound annual growth rate terms.