Rethinking Easy Credit: What Rising Defaults Could Mean

Image Source: Business Today

Fintech-driven personal loans are facing mounting stress, with delinquencies reaching a six-quarter high of 3.6% by March 2025. This spike is most pronounced in Tier-3 cities and rural areas, where delinquency rates have climbed to 4.2% and 4.1% respectively. The sharpest stress is among borrowers under 25, who account for a staggering 6.1% of delinquent loans, highlighting the risk concentration in younger demographics.

Key highlights:

Market Share: Fintech NBFCs now dominate the personal loan landscape, holding 74% of loan volume (10.9 crore loans) but just 12% by value (₹1.06 lakh crore), underscoring their focus on small-ticket, high-frequency lending.

Growth Trends: Sanction volume grew by 22% in FY25, but this is a slowdown from previous years (33% in FY24, 73% in FY23), indicating a maturing market. The average loan size remains modest at ₹9,786, but nearly half the value comes from loans above ₹50,000.

Borrower Profile: Young borrowers (under 35) received 66% of total sanctioned value, and 39% of loans went to Tier-III and smaller towns. Women accounted for 16% of the value, a sign of increasing financial inclusion.

Risk Factors: Multiple credit bureau reports warn of rising indebtedness, with many borrowers holding three or more active loans within two years of their first fintech loan.

Regulatory Concerns: The RBI’s latest Financial Stability Report flags the growing stress in NBFCs’ retail portfolios and highlights banks’ increasing caution in lending to these segments, raising concerns about asset quality and funding stability for fintech lenders.

With fintechs now the preferred choice for underserved and younger borrowers, the sector’s rapid growth is being tempered by rising delinquencies and regulatory scrutiny, signaling a need for tighter risk management and responsible lending.

Sources: Economic Times, Moneycontrol, Fortune India