From Savings to Spending: The Evolution of Borrowing in India

From Savings to Spending: The Evolution of Borrowing in India

The Changing Financial Landscape

The evolution of borrowing trends in India is intricately tied to the changing financial landscape, notably marked by a significant surge in the digital lending ecosystem. In recent years, the credit market has experienced remarkable growth, with predictions indicating that the digital lending market is poised to expand from $270 billion in 2022 to an astounding $1.3 trillion by 2030. This surge has been propelled by the emergence of digital lending companies, contributing to a robust compound annual growth rate (CAGR) of 39.5 percent over a decade.

Rise of Consumer Lending Startups

India is home to approximately 1,263 digital lending startups, out of which over 147 (12% of the total 1,263) are backed by venture capital funding. With venture capital inflow in B2B lending startups having grown at a CAGR of 72% (2015-2019) it remains the most favored sub-segment within the lending tech segment.

Credit Cards: India’s New Favorites

In recent times, the Indian market has witnessed an exponential surge in demand for short-term loans related to purchases and spending. This can be ascertained from the data shared by the Reserve Bank of India (RBI) which shows that credit card use in India has ticked up significantly over the past year. In April 2023, India had over 8.6 crore (86 million) credit cards, up 15% from 7.5 crore (75 million) in April 2022. This number could hit the 10-crore (100 million) milestone by early 2024.

What is driving the growth?

The digital lending sector in India is booming, thanks to two main factors: more and more people gaining access to the internet (almost half of India’s population), and a strong digital framework called India Stack. This framework includes essentials like electronic Know Your Customer (e-KYC), Unified Payments Interface (UPI), and account aggregator systems. Together, they are bringing about a significant change in the entire digital lending landscape.

Decreased Emphasis on Household Savings

Household savings in India have hit a five-decade low, dwindling to 5.1% of the GDP in FY 2023 from 7.2% in FY 2022. This is concerning as a higher savings rate has typically been associated with robust economic growth. Concurrently, data from the RBI reveals a substantial increase in financial liabilities of households, jumping from 3.8% of GDP in FY 2022 to 5.8% in FY 2023.

Conclusion

• The digital lending ecosystem is experiencing robust growth, with predictions of a $1.3 trillion market by 2030, showcasing India’s adoption of financial technology.
• The rise of digital lending startups, particularly in the B2B segment, reflects the entrepreneurial spirit propelling this sector forward.
• Concurrently, changing consumer behaviors are evident in the surge of short-term loan demand and a noteworthy increase in credit card usage.
• Despite financial dynamism, India faces concerns as household savings hit a five-decade low, emphasizing the need for a nuanced approach to financial policies.
• Navigating the evolving borrowing landscape requires striking a balance between financial innovation and prudent financial management.
• Embracing digital lending opportunities while addressing challenges in personal savings is crucial for sustaining a healthy and resilient economic future.