Discover the emerging borrowing habits of India’s middle class, where loans for business ventures signal a bold entrepreneurial spirit, even as concerns about data privacy and regulatory adaptations loom large. Dive into how these trends are reshaping India’s financial future.
Home Credit’s “How India Borrows Survey 2023” reveals key insights into borrowing behaviors, showing a complex blend of alarming and positive trends within India’s financial landscape. A comparison with RBI statistics highlights a climb in household debt, yet also points towards an urge for financial literacy and privacy among borrowers.
The survey, covering 1,842 individuals aged 18-55 from 17 cities and an average monthly income of ₹31,000, shows only 18% of individuals are well-informed about data privacy. A majority are concerned about data misuse, with 58% believing that lending apps collect excessive information. Notably, GenZ expresses more significant concerns about data privacy, with 70% seeking clearer data use communication.
Borrowing purposes vary, with 44% of loans for consumer goods like smartphones and appliances, and 19% aimed at business ventures. The data indicates a shift towards digital, with 29% already choosing online loans and 51% considering digital lending for future needs.
The convenience of tele-loan services is on the rise, increasing from 16% to 19% in just a year. Notwithstanding, traditional POS and bank transactions have seen a slight dip from 56% to 51%. Meanwhile, a comfortable majority engage in online shopping (48%) and show a preference for app-based loan processes (over 50%).
The survey also finds that 49% of borrowers favor EMIs on card payments. Recent RBI regulations on (Buy Now Pay Later) options and Prepaid Payment Instruments have narrowed loan access, suggesting a need for financial institutions to adapt to emerging patterns and regulatory frameworks. This analysis reflects individuals’ growing digital preference and privacy consciousness, alongside a regulatory environment influencing borrowing formats.
The Reserve Bank of India (RBI) has been vocal about its concerns over the growing household debt and accordingly, has adjusted risk weights for several loan categories. Recently released RBI figures show a trend: increased borrowing and a decrease in saving among households.
In the fiscal year 2022-23, financial assets, including savings, cash, and investments, dropped to 5.1% of GDP from 7.2% the previous year. This signifies the lowest savings rate in nearly five decades. Moreover, the household debt-to-income ratio rose by 5.8% in FY23.
High debt levels and sagging savings aren’t without risks, but the silver lining is the entrepreneurial drive fueling 19% of the borrowed funds, reflective of the middle class’s ambition.
The surge in digital financial services adoption bolsters the Indian economy’s move towards digitization, a direction encouraged by the government’s “Digital India” initiative. However, it also highlights the pressing need for improved data privacy understanding and enhanced financial literacy. The lack of these skills makes borrowers susceptible to cyber fraud and misinformed financial commitments.
Noticing the gap, many, especially those from Gen Z, show an eagerness to learn about finance through the internet: 39% of borrowers expressed interest in online financial education from reputable sources.
The RBI and other authorities are called upon to nurture this proactive approach. This could involve creating financial literacy programs or endorsing private sector-run certifications. Such initiatives could also present new business opportunities for startups specializing in financial education and data privacy training.
Lending for business purposes has the potential to boost macroeconomic growth, and while this is to be encouraged, the RBI must also address and thwart unethical practices within the sector.
To safeguard borrowers from deceptive online practices and lending schemes with unclear and sometimes exorbitant terms, there is a critical need for stringent oversight and more robust personal data protection laws.
Hence, it’s crucial that the hiking of risk weights by the RBI is complemented with stricter transparency norms for retail lending and a stronger emphasis on financial literacy, which couldn’t be more imperative in the current financial landscape.
