Debt Trap Awaits The Young

With youngsters latching on to the consumption bandwagon, their finances are increasingly under pressure

- V. KESHAVDEV

For a banker, the numbers can be heartening, but are nonetheless disquieting. According to a study by Equifax and Andromeda, the number of active personal loans surged from 3.5 crore as of March 2020 to six crore by March 2022. Personal loans stood at ₹40.13 lakh crore as on February 24, 2023. Housing loan is the biggest chunk of the personal loan category at ₹19.11 lakh crore, followed by “other personal loans” at ₹10.79 lakh crore and vehicle loans at ₹4.96 lakh crore. Between FY19 and FY23, these three loan categories have grown by over 65% (₹11.59 lakh crore in FY19), 85% (₹5.83 lakh crore in FY19) and 125% (₹2.2 lakh crore in FY19), respectively. Interestingly, there is no break-up of “other personal loans,” which are, usually, taken for travel, home renovation, wedding, medical emergency, festival, and come at higher interest rates.

What is fuelling retail credit growth is the onboarding of new-to-credit (NTC) consumers. For instance, according to TransUnion, a credit information and insights company, 35 million Indians bought their first credit product in 2021, while another 31 million were NTC consumers in the nine months of 2022. A majority (42%) of these consumers were millennials (born between 1980 and 1994), followed by Gen Z (born between 1995 and later) at 29%. But what should be a matter of concern is that these NTC consumers are concentrated (67%) in rural and semi-urban areas where the annual income is ₹40,925 (measured as per capita net value added), half that of urban income (₹98,435).