India’s retail credit landscape witnessed a notable deceleration in growth during the fourth quarter of FY25, as data from TransUnion CIBIL revealed a sharp moderation in loan originations, particularly among younger, urban consumers. Retail loan origination growth slowed to 5% from 12% a year earlier, driven primarily by reduced demand for unsecured credit such as credit cards and consumer durable loans. The trend is linked to regulatory tightening by the Reserve Bank of India and a marked decline in borrowing activity among individuals under 35. Meanwhile, lenders appear to be shifting their focus toward high-ticket home and auto loans, signaling a recalibration in credit strategies.
Regulatory Cooling and Consumer Caution Reshape Credit Demand
The RBI's regulatory interventions in late 2023 aimed at curbing aggressive lending in the unsecured segment appear to have achieved their intended effect. TransUnion CIBIL’s latest report highlights that credit card originations plummeted by 32% in Q4 FY25, compared to no change in the corresponding period a year earlier. Similarly, personal loan growth halved to 6% from 13%, while consumer durable loan expansion dropped to 6% from 19%.
This cooling in credit appetite comes amid rising risk aversion among younger consumers, particularly those residing in urban centers and metros. This demographic, traditionally a key driver of retail credit demand, appears to be pulling back, either due to economic uncertainties, higher interest rates, or shifting spending behaviors.
Youth Borrowing Slumps, Undermining Financial Inclusion Progress
The most profound impact has been felt among new-to-credit (NTC) consumers — typically individuals accessing formal credit for the first time — where originations dropped by three percentage points to 16%. Given that younger consumers form a significant portion of the NTC cohort, this contraction raises concerns about long-term financial inclusion goals.
Bhavesh Jain, managing director and CEO of TransUnion CIBIL, emphasized the importance of maintaining a healthy pipeline of NTC borrowers. “A decline in the pace at which new borrowers enter the system undermines efforts to expand credit access across underserved demographics,” he said. Such a decline could have ripple effects on economic participation and consumption-led growth.
Home and Auto Loans Shift Toward High-Value Segments
The softness in overall retail credit did not extend uniformly across all loan types. While home loan originations declined by 7%—reversing the 5% growth seen in the previous year—there was a notable uptick in high-value mortgages. Loans above Rs. 1 crore witnessed a 9% rise in origination volumes, suggesting that lenders are increasingly favoring affluent borrowers and larger loan tickets in an environment of cautious lending.
Auto loan trends followed a similar trajectory, with lenders showing a clear preference for financing higher-value vehicles, underscoring a strategic pivot toward more secure and profitable credit categories.
Geographic Trends: Rural Inquiries on the Rise
Amid urban stagnation, rural and semi-urban areas showed signs of resilience. Inquiry volumes in rural regions rose to 22% in March 2025 from 20% a year earlier, while semi-urban regions saw a modest increase to 30%. Conversely, metros and larger cities recorded declining shares, further underscoring the shift in consumer behavior and lender outreach strategies.
This uptick in rural credit inquiries may reflect growing digital penetration, improved financial literacy, and government-led inclusion initiatives. It also suggests that rural India remains a growth frontier for financial institutions amid urban saturation.
Asset Quality and Risk Metrics: Mixed Signals
On the asset quality front, the credit environment showed incremental improvements, with delinquencies (loans overdue by more than 90 days) declining across most segments. The sole exception was the credit card portfolio, where delinquencies rose by 0.28% to reach 2%.
This deterioration, although modest, reinforces concerns about the inherent risk associated with unsecured lending. It may further prompt financial institutions to continue tightening underwriting norms for such products, at least in the near term.
Conclusion: A Credit Landscape in Transition
The data from Q4 FY25 paints a picture of an evolving credit market, shaped by regulatory action, shifting demographics, and changing consumer sentiment. As younger, urban borrowers reduce their reliance on unsecured credit, financial institutions appear to be recalibrating toward safer, high-value lending opportunities.
While the overall moderation in retail credit growth signals prudence and policy effectiveness, the dip in participation from new borrowers could have long-term implications for economic inclusion. In the coming quarters, the challenge for lenders will be to balance risk management with growth, while also fostering access for underserved segments of the population.
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