Personal loans under Rs 10,000 record higher default rate

MUMBAI: Small-ticket personal loans under Rs 10,000 showed higher delinquency rates than larger loans, with peak defaults occurring among those who took loans between Dec 2023 and June 2024, data for Sept quarter of FY25 showed. Fresh loan originations in this segment were dominated by NBFCs, which lent to new borrowers outside the top 100 cities.
The Fintech Barometer (vol II) by CRIF High Mark and the Digital Lenders Association of India reported a 44% increase in delinquencies among personal loan borrowers who took loans between Dec 2023 and June 2024. NBFCs expanded their market share in personal loans by both value and volume. The rise in small-ticket loans reflects efforts to drive financial inclusion through digital lending.
In unsecured business loans (UBL) and loan against property (LAP) segments, demand for loans under Rs 10 lakh remained steady, with these loans accounting for a significant portion of volume share. Cities beyond the top 100 contributed 42% of value and 44% of volume in originations, indicating growing participation from smaller urban and rural areas.

The lending landscape presented a mixed risk profile. High-risk and very high-risk loan portfolios declined, even as thin-file borrowers and individuals without credit scores increased. While riskier, these groups are essential for advancing financial inclusion by bringing underserved individuals into the formal credit system. Delinquency rates across geographies remained stable.
“Adverse macroeconomic trends have led to slower growth in new loan originations and rising delinquencies after Mar 2024,” said Subhrangshu Chattopadhyay, whole-time director at CRIF High Mark. He cited the RBI’s Financial Stability Report, released on Dec 30, 2024, which showed rising household debt, with super-prime borrowers borrowing for asset creation and subprime borrowers borrowing for consumption. These trends, coupled with regulatory actions, underscore the need for sustainable growth in unsecured lending.
The report highlighted the importance of monitoring borrower score trends over time rather than relying on point-in-time scores. Borrowers whose credit scores declined between June and Dec 2023 were flagged as higher risk, emphasising the need for continuous risk assessment. In UBL, addressing blind spots in evaluating business owners’ commercial obligations was identified as critical to improving credit decisions.