Younger borrowers step back as debt piles up and lenders get cautious

Is a rise in personal loans always a good sign? Experts aren't so sure anymore. A new report suggests something unusual is happening in India’s borrowing trends.

The “How India Lends – FY2025” report by CRIF High Mark, released in July, shows personal loans hit ₹8.80 lakh crore in 2025, an 8.3% increase in the number of loans from 2024. But the total money borrowed actually fell by 2.9%, meaning fewer big loans were taken.

This mismatch, more loans but less money overall, is making banks and fintech companies nervous. They’re now focusing on safer bets: smaller loans given to low-risk customers. It’s a big shift in strategy after two years of fast lending and risk-taking.

Credit Growth Is Slowing, Data Confirms

The slowdown is not just about personal loans. RBI’s sectoral deployment data, published in its January 2025 update, confirms a dip across retail segments. Personal loan growth slipped to 14.2% year-on-year, compared to 18.2% in 2024. The dip comes even as home and education loans showed a moderate rise.

By February 2025, things looked even slower. The RBI noted that total loan growth, excluding major mergers like HDFC, had dropped to 8.4%. That marked the eighth month in a row of declining growth, raising eyebrows among economists and lenders.

What’s behind this shift? A closer look reveals that younger Indians, once the driving force of retail credit, are now stepping back.

Younger Borrowers Take a Step Back

Data from TransUnion CIBIL shows fewer new borrowers under 35 joining the credit system. Their Credit Market Indicator fell to 97 in Q1 FY25, the lowest in two years, pointing to weak demand. Loan originations from borrowers under 30 slipped from 58% to 56%, with first-time borrowers also dropping.

Why? The answer lies in rising interest rates, job worries, and cautious money habits. Gen Z and millennial borrowers, once eager to tap credit, are now holding back.

And it's not just them. Lenders are changing their filters too.

New Lending Rules Changing Loan Structures

In late 2023, the Reserve Bank of India (RBI) made borrowing rules stricter by raising risk weights on unsecured personal loans and credit card debt. This move was aimed at reducing the financial system's exposure to risky loans, which had surged after the pandemic.

The response was quick, banks and non-banking finance companies (NBFCs) pulled back on loan disbursals, and fintech firms tweaked their loan approval systems.

According to a 2025 update from the Fintech Association for Consumer Empowerment (FACE), digital lenders handed out over 10.9 crore loans worth ₹1.06 lakh crore in FY25.

But despite the large number of loans, the average size of each loan was just ₹9,800, down from around ₹12,000. This shows lenders are now favouring safer, smaller loans with shorter repayment terms, rather than big-ticket lending.

This shift toward smaller loans is also visible in credit bureau data.

Retail Credit Summary (FY 2025)

Category	Figure	Change from FY24
Personal loan volume	₹8.80 lakh crore	0.083
Total value of new loans	₹8.80 lakh crore	–2.9%
Average fintech loan size	₹9,800	Dropped from ₹12,000 approx.

More people are opting for quick, low-value credit to manage everyday needs without committing to long-term debt.

Household Debt Reaches Record High

Meanwhile, household debt is climbing. RBI’s Financial Stability Report (June 2025) shows the average borrower now carries ₹4.8 lakh in debt, up from ₹3.9 lakh in March 2023. Surprisingly, most of this increase isn’t from home loans, but from personal and other unsecured loans.

As of March 2025, non-housing loans make up 54.9% of all household debt. Experts say this points to more people using personal loans to cover regular expenses like rent, medical bills, or lifestyle purchases.

Retail inflation remains stable around 5%, so rising costs aren’t the main concern. The bigger issue is stagnant income. With earnings not rising fast enough, small loans have become lifelines for many families to manage their monthly needs.

Household Credit Composition

Debt Type	Share in Household Debt (%)
Housing Loans	45.10%
Non-Housing Loans	54.90%
Average Per-Capita Debt	₹4.8 lakh

If income levels don’t improve, this growing reliance on credit could become a concern for both families and the broader economy.

Conclusion

Getting a personal loan could become harder in the coming months. Banks are pulling back from risky lending, and fintech companies are offering smaller, safer loans. As a result, younger people and first-time borrowers may struggle to get large loan approvals.

On the brighter side, loan defaults haven’t jumped drastically. A recent FACE report says just 3.6% of fintech borrowers missed payments by over 90 days, a level still seen as under control.

Still, experts warn that trouble could grow if people keep borrowing while their incomes stay the same. The government might soon have to step in to balance the risks and keep credit flowing to low-income urban families.

As the new financial year begins, lenders are aiming for caution with care. Borrowers, meanwhile, will have to borrow wisely and spend smart.

Other News Pages
RBI Keeps Repo Rate Unchanged: Impact on Home Loans	RBI Finalises Co-Lending Norms: Banks/NBFCs Must Retain 10%	Finance Ministry: World Facing Trade Policy Disruptions	RBI MPC Decision: Big Shift for Gold Loan Borrowers & NBFCs
Home Loan Rates Drop Below 7.5%: Top Bank Offers	RBI VRRR Sees Muted Response as Overnight Rates Rise	Jio Financial to Raise ₹15,825 Crore via Preferential Issue	How India’s Credit Structure Weakens RBI Policy Impact
RBI Warns Lenders: Don’t Bypass Safeguards to Grow	AHFC Loans to Touch ₹2.5 Lakh Crore by FY28: ICRA	India’s Services Exports Rise 12% in June: RBI	Forex Reserves Hit $698.1 Billion After $2.7B Gain
ICICI Bank to Charge Aggregators for UPI: Impact on Users	RBI May Cut Repo Rate by 25 bps in August to Boost Credit	Gold Loan Demand Doubles in One Year, Govt Tells Lok Sabha	Kisan Credit Card: Get ₹5 Lakh Loan at 4% Interest (Guide)
Personal Loan Volumes Surge in FY25 but Growth Slows	RBI Bulletin: PSB Savings Deposit Rates Hit Record Lows	AIFF Finalises Pension & Benevolence Fund Accounts	RBI Caps Bank/NBFC Investment in AIFs at 20%
Retail Mortgage Loans by NBFCs, HFCs to Hit ₹20 Trillion by FY28	RBI May Review Liquidity Framework in August 2025	SBI Hit by ₹55 Crore Personal Loan Scam: Key Lessons	BOB, Canara Bank Write Off ₹54,000 Crore Loans for Safety