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Borrowing trend among consumers in India has turned largely positive after the second covid-19 wave, an annual survey by Home Credit India has revealed. The study claimed that there is a return to normalcy as consumer sentiments are buoyant about economic revival.

Home Credit India, which is the local arm of the international consumer finance provider with operations spanning over Europe and Asia, released its annual survey ‘How India Borrows’ (HIB) on Tuesday. It captures an overview of India’s borrowing patterns and individual reasons during and after the second wave.

The HIB study was conducted across 9 cities, including Delhi, Jaipur, Bangalore, Hyderabad, Bhopal, Mumbai, Kolkata, Patna, Ranchi. The primary sample size was over 1,200 respondents (Home Credit customers) in the age group of 21-45 years, with an income of less than 30,000 per month.

The research report shows a significant transition in consumer borrowing behaviour from need-based or for survival borrowing to desire-based borrowing. There has been a sharp uptick in borrowing for business set-up or expansion accounting for (28%), followed by small loans or credit for consumer durables purchase at 26% of the total borrowings. Other positive reasons were house renovation /new construction (13%), medical emergency (2%), vehicle loan (9%), marriage (3%), education loan (2%), investments and returning a previous loan et al (1%). The research report shows a sharp drop in borrowing for running household expenses to 4% in 2021 viz-à-viz 85% last year, thereby showing a transition from need-based borrowing to desire-based borrowing.

Top reasons for borrowing
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Top reasons for borrowing (How India Borrows 2021 Survey)
Reasons for borrowing
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Reasons for borrowing (How India Borrows 2021 Survey)

Another positive has bucked the trend for digital empowerment. The HIB report indicates that nearly 40% of borrowers showed a willingness to move to digital platforms for taking loans viz-a-viz over 15% of customers who have already graduated to the online loan journey instead of traditional offline channels. Although technology has been a key enabler, the survey findings reveal that like all digital trends, chatbot familiarity and trust in it are governed by age – younger customers leading it.

Preference for loan channel
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Preference for loan channel (How India Borrows 2021 Survey)

Vivek Kumar Sinha, Chief Marketing Officer, Home Credit India, said, “The in-house annual study on Consumer borrowing trends, How India Borrows 2021, indicates the revival of positive borrowing as people fight to come back from the varied losses incurred in the pandemic year 2020. This resilience of consumers is reflected in the rise in business loans borrowing, home renovation and other positive reasons versus primarily borrowing for meeting household & family needs in 2020. The pandemic has also led to the acceleration of digitalization as a rising number of borrowers are showing a preference for adopting online loan journey for future borrowings, hence strengthening digital empowerment in financial services, although financial literacy penetration is still a work in progress."

With many people having suffered job loss, salary reductions, it has led to an increase in consumer need towards business revival this year. Regionally, the survey findings outline that Bengaluru and Hyderabad recovered faster from the pandemic, with 41% of respondents in Hyderabad taking loans for business revival and 42% respondents in Bengaluru for consumer durables purchases.

While states like Bihar and Jharkhand have the lowest Internet population at 24% and 29%, respectively, digital literacy in terms of using mobile phones in Patna and Ranchi was recorded at 64% and 65%, respectively.

The research also revealed that Kolkata and Delhi have a higher proportion of female borrowers in comparison to cities like Jaipur. Respondents interviewed during the research highlighted that some handholding and guidance on financial and digital literacy will ensure their loan journey is completed hassle-free and independently.

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