When it comes to tackling a financial crisis or catering to a financial need, a personal loan is the first option that springs to mind. The reason being that this is the easiest and quickest form of personal finance that does not require you to surrender security or collateral, making it highly accessible as a financing option.
But even personal finance saw a dip in 2020, the year when the COVID-19 pandemic caused major disruptions in the loan market. The reduction in the number of people taking out loans came as no surprise, as it became difficult to manage the current personal loan EMIs due to cash crunches and looming uncertainty. Here is a recap of the personal finance industry in 2020.
Millennials become the drivers of the personal finance market
According to a report by CRIF High Mark, a credit bureau, personal finance witnessed the most dramatic changes. Before the pandemic, young borrowers aged between 18 to 35 years were the most active in the personal finance market and were responsible for driving growth, as their borrowing share had risen from 27% to 41% in two years. However, the coronavirus-struck year saw a reverse as mature borrowers, aged over 35 years, took the lead.
Increase in small ticket borrowers
The small ticket segment of personal finance consists of borrowings of less than Rs. 50,000. This has been a significant force behind the personal finance industry’s growth. The borrowers with an income of less than Rs. 3 lakhs per annum borrow short-term loans for quick credit needs, and they have increased from 53% to 86% between March 2018 to March 2020.
Even after the pandemic struck, this sect witnessed only a marginal decrease, from 86% to 78%, as of August 2020. The share of personal finance in this category has increased fivefold in five years, as observed at the end of 2020. It will not be surprising if the small borrowers take the lead in propelling the market for personal finance in 2021.
NBFCs dominate the market
Non-banking financial institutions have excelled in the personal finance market as they target young, low-income borrowers who are perceived as high-risk candidates by other financial institutions. As of August 2020, the NBFC market share was at 42.16%.
Total bank credit
As per a report released by the RBI, the personal finance sector has increased to holding a share of 28% of the total loan book in 2020. Apart from home loans, the unsecured loans in other categories also grew to cover almost 8% of the loan book. This could be attributed to the easy-to-meet personal loan eligibility.
To sum up
The personal finance sector of the loan market is expected to grow exponentially in the coming five years. Moreover, as people get more accustomed to the new normal, they can resume borrowings for personal finances. If you wish to avail a personal loan, apply online.
Make sure to check personal loan interest rates using the various calculators present at lenders’ websites.