India’s retail credit market exhibited a noticeable slowdown in the final quarter of FY 2024–25, with new loan originations rising by only 5% in March 2025—less than half the growth rate recorded a year earlier. This tepid expansion occurred despite the Reserve Bank of India reducing its policy repo rate by 25 basis points to 6.25% in February. TransUnion CIBIL’s Credit Market Indicator (CMI) fell to a two-year low of 97, signaling weaker market health. However, lenders showed an increasing preference for high-value, asset-backed loans, even as younger borrowers reduced their credit activity.
Retail Lending Momentum Eases Sharply
India’s retail credit landscape experienced a marked deceleration during the March 2025 quarter, as fresh loan originations—often used to gauge both consumer appetite and lender activity—registered just 5% growth on a year-over-year basis. This compares unfavorably with the 12% growth reported in the same quarter of the previous fiscal year.
The slowdown comes amid an evolving macro-financial context, including a policy easing measure by the Reserve Bank of India (RBI), which reduced the repo rate to 6.25% in February 2025. Historically, such a move tends to stimulate borrowing by making credit more affordable. However, that stimulus appears to have had limited traction this time around.
Credit Market Indicator Hits Two-Year Low
TransUnion CIBIL’s Credit Market Indicator (CMI), a composite gauge of credit market health, declined to 97—the lowest level in two years. A CMI above 100 signals improving conditions, while a reading below that threshold reflects weakness in demand, supply, or overall credit quality.
The dip in the index reflects not only diminished credit demand but also lender caution in extending new credit, particularly to new-to-credit (NTC) consumers who typically carry higher risk profiles. This segment is largely composed of younger borrowers under 35 years of age.
Younger Borrowers Pull Back on Credit
A notable contributor to the overall moderation in demand was the behavioral shift among younger borrowers. Consumers aged 35 and below showed a significant retreat from the credit market, with their share of credit enquiries falling to 56% for the March 2025 quarter, down from 58% a year prior.
The share of new-to-credit consumers receiving financing also declined by three percentage points. This softening in engagement among youth may reflect broader uncertainties—such as employment volatility, inflationary pressures, or delayed discretionary spending—which often influence the borrowing behavior of first-time or younger borrowers.
Silver Lining: Declining Credit Card Delinquencies
Despite the downturn in loan origination momentum, the credit market showed early signs of stabilization in terms of borrower behavior. Credit card delinquencies, a common proxy for consumer stress, have been declining consistently month-over-month from January to March 2025.
This trend, if sustained, could indicate improving repayment discipline and may eventually encourage lenders to reengage more aggressively with riskier borrower segments in the coming quarters.
Asset-Backed Lending Gains Favor
While volume growth across most loan segments lagged, there was a notable uptick in high-ticket lending. This divergence suggests that lenders are favoring quality over quantity—preferring large, asset-backed loans over smaller, unsecured exposures.
Home loans exceeding Rs. 1 crore surged 9% year-over-year in the March 2025 quarter, in sharp contrast to the 7% contraction witnessed across the broader home loan category in the previous fiscal. Two-wheeler loans above Rs. 1.5 lakh also saw a 7% rise, rebounding from a 1% decline recorded a year earlier.
Such growth patterns reflect both a shift in consumer borrowing preferences toward higher-value purchases and a strategic pivot by lenders toward segments with greater collateral coverage.
Outlook: Navigating a Cautious Rebalancing
The softening in retail credit growth, especially among younger consumers, highlights a transitional phase in India’s borrowing landscape. While macroeconomic policy tools like rate cuts have traditionally spurred lending, their muted impact this time suggests underlying consumer apprehension or shifting market dynamics.
However, the resilience observed in high-ticket lending, paired with early signs of improved credit performance, may indicate that the market is undergoing a quality-centric recalibration rather than a full-scale contraction. Going forward, financial institutions will likely continue targeting asset-backed segments while awaiting a clearer uptick in consumer sentiment and credit confidence.
Comments