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A Review of India’s Credit Ecosystem

Credit Industry in India is witnessing historic changes owing to several reforms undertaken by the government in the latter part of the last decade. India’s domestic credit growth has averaged at 15.1% from March 2000 to March 2021. The number of people willing and able to take loans from formal channels is at a never-before-seen level. This is driven mainly through the strength of India’s young population and an aspiring middle-income class that is slowly moving away from a saving mentality and are now willing to take loans for instant gratifications based on their lifestyles.

The report throws light on the key economic indicators ranging from unemployment to inflation which have remained well within the target level despite the pandemic. More modern indicators such as internet connectivity and the number of people availing of bank services have also taken dramatic strides. The report highlights the opportunity in Tier 3 and Tier 4 regions of India and talks about how rural India is finally coming at par with the urban areas. The number of people willing and able to take loans from formal channels is at a never-before-seen level.

The flagship digitisation initiatives have propelled the growth of Digital payments which grew to almost 40% in the pandemic year and are predicted to surpass cash payments by 2025. This uptick in digital payments vis-à-vis cash payments is the driving factor augmenting formal credit consumption whilst furthering financial inclusion contemporaneously. Further, with embedded finance and utility apps turning their strategies to become super-apps, another trend that can be watched closely and to which retail credit promotion and elevation can be attributed. Fintechs and NBFCs have carved out their market share by targeting customers who were otherwise unable to borrow. This has brought a whole new section of customers, and this market is far from being saturated. NBFCs have leveraged deep understanding of consumer preferences and differentiated business to grow as a preferred choice, especially in unorganised markets.

The report finally discusses the effect of the pandemic on the economy, especially on the credit industry, and the resilience the country has shown under its able leadership and empowered private sector.

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