India’s younger generations are reshaping the country’s lending landscape, with digital lending poised to capture 5% of the retail loan market by FY28, up from 2.5% in FY24, according to a recent report by Redseer Strategy Consultants. The report, titled “The New Age of Borrowing: A Generational Shift Towards Digital Lending,” projects that digital lending will grow at a CAGR of 40% from FY24 to FY28, reaching Rs 4.5-5.0 trillion by FY28. This marks a significant increase from the 2.5% share (Rs 1.5-1.6 trillion) in FY24 and the 1.8% share (Rs 0.8 trillion) in FY22.
The report examines the credit patterns of two age groups in FY24—Gen Z (aged 18-25) and millennials (aged 26-38)—who are increasingly borrowing digitally, with each cohort fulfilling distinct needs. During this period, millennials borrowed a substantial Rs 25-28 trillion, while Gen Z accounted for Rs 3.5-4.0 trillion of retail loans.
For millennials, credit card spending topped the list at 30%, followed by personal loans at 21%. Home loans accounted for 11%, auto loans 7%, and consumer durable loans and business loans 3% each. The remaining 25% was distributed among other loan types, with gold loans at 8%, education loans at 6%, loans against property at 5%, commercial vehicle loans at 4%, and agricultural loans at 2%.
Gen Z showed a stronger preference for personal loans, which made up 40% of their borrowings. Credit card spending followed at 27%, with consumer durable loans at 14%. Auto loans and home loans each accounted for 6%, while business loans made up 3%. The remaining 4% was split between other loan categories. The report also notes that only 15-20% of Gen Z individuals in India are currently credit-active, compared to 35-40% in South Africa, 40-45% in China, and 75% in the USA. This indicates significant room for growth in credit adoption among India’s younger population.
Jasbir S Juneja, partner at Redseer Strategy Consultants, commented on the findings: “Gen Z and millennials are at the forefront of transformative change in the retail lending market. Their preference for digital solutions is driving innovation and reshaping the entire lending landscape.”Comparing India’s overall retail credit market with global benchmarks, the report underscores significant headroom. India’s household debt per capita stands at just $900, significantly lower than other developing economies like China ($7,800) and Brazil ($3,100). The US leads with $58,000 household debt per capita, followed by the UK at $39,000.
The study also revealed varied borrowing patterns across income groups in India. In FY24, affluent households (earning over Rs 20 lakhs annually) displayed high credit penetration rates and primarily used traditional banks. Well-off households (earning Rs 12-20 lakhs annually) were credit-active and utilized both traditional and digital lending services. Middle-income households (earning Rs 3-12 lakhs annually), while credit-active, were underserved and increasingly turned to digital lenders. Low-income households (earning less than Rs 2.8 lakhs annually), often unserved by traditional banks, present a significant opportunity for digital lenders, the report added.