From relying on the digital disruption in the financial services sector, the Indian personal lending sector is growing strongly. In response, the tier 2 banks have increased their risk appetite and as a result are experiencing rising loan impairments. This reflects their potentially risky lending practices and an inability to correctly assess the repayment capacity of borrowers, says GlobalData, a leading data and analytics company.

The company’s latest report, Retail Banking Market Dynamics: India 2018, forecasts personal loan balances, which recorded a compound annual growth rate (CAGR) of 18% during 2013–17 to reach $135.5bn, to grow at a CAGR of 16% over the period 2018-2022.

Resham Karira, Retail Banking Analyst at GlobalData, says: “Digital lending in India is progressing at a fast rate and the loan application process is almost completely paperless. From e-KYC to disbursal, the process is going to get more seamless and hassle-free, thereby increasing the number of people opting for it.”

In line with this trend, there has also been a sharp increase in the number of FinTech companies that are making it simpler for consumers to get these loans. In addition, initiatives like Aadhaar have created the perfect base for technology and data innovations, as well as for digital players and incumbents to offer consumers tailor-made lending products along with extremely convenient and quick processes.

These positive performance trends indicate that significant growth potential remains in the personal loans market. However, an analysis of GlobalData’s Retail Banking Analytics reveals that incumbents are gaining market share in all product areas from mid-ranking banks.

Karira concludes: “Mid-ranking banks have responded by increasing their risk appetite, and are experiencing rising loan impairments as a result. This not only demonstrates massive growth but also the potentially risky lending practices in terms of aggressive lending and an inability to correctly assess the repayment capacity of borrowers.”