Compiled By : Vimal Saboo, Chief Business Officer at EarlySalary

About Vimal: He is a Chartered Accountant and comes with an experience of 22 years in banking and credit domain. In his current role at Earlysalary, he focuses on building the Credit Risk Profiling system and spearhead Credit Risk, Analytics, Collection & Operations.

Retail consumer lending started to pick up momentum in 2000-2004 when private sector banks started focusing on consumer lending, but it had a setback due to the global recession in 2008. The industry came out of recession in 2-3 years and again started to pick up momentum from 2012. In the last 5 years, consumer lending has picked up significant momentum due to participation/innovation from Fintech. 

In India, there are approximately 30 crores individuals who have taken some form of credit from the organized market, and most of it is in the form of consumer durable loans or Kisan credit cards. Total consumer credit outstanding in India is approx. US$ 720 Billion (around Rs 52 lacs crores). Per capita, the average debt outstanding in India is around US$ 550 (Rs 40K) which is around 30% of per capita income.

In the USA, credit culture has been there among consumers for more than a few decades wherein people buy almost everything on credit card and pay in Equated Monthly Instalments. 

Just to give a few numbers, credit card outstanding in the USA is almost US$ 950 Billion translating to approx. US$ 6,500 per capita outstanding. In the US, almost 61% of people have at least one credit card and the average person has 4 credit cards. Mortgage outstanding in the US is around US$ 10 Trillion. An average personal debt carried by an American is around US$ 93,000 which is around 175% of per capita income.

Millennials and Gen Z are more willing to take credit to fulfill their aspirations/discretionary spends hence there will be more consumer credit growth in the next 10 years. Also, with more product innovation like short-term loans, Debit card EMI and buy now pay later (BNPL) in addition to traditional products for buying home, vehicles, credit is becoming more easily accessible by improving customer onboarding experience. 

Now customers have multiple choices for credits at various places like small credit being offered (around Rs 5-10K limit) at different e-commerce platforms to use while buying products/services and pay them in bulk/EMI OR buying the product at zero cost with help of merchants tying up with lenders. 

While the consumers have lots of options but at the same time, the consumer needs to behave rationally/responsibly while taking credit and/or repayment as he has been getting multiple tiny limits from various e-commerce platforms.

Although there is an increase in credit cost due to COVID 19 and its impact will still be seen for the next 2-4 quarters also especially coming from the SME/MSME sector. However, lenders are coming back and started lending aggressively with the introduction of newer products.

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