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Consumer borrowing trend now broadly positive: mortgage survey

The borrowing trend among consumers in India has turned largely positive after the second wave of covid-19, an annual survey by Home Credit India has revealed. The study claimed that there is a return to normal as consumers are optimistic about the economic recovery.

Home Credit India, which is the local arm of the international consumer finance provider with operations spanning Europe and Asia, released its annual How India Borrows (HIB) survey on Tuesday. It provides an overview of India’s borrowing patterns and individual reasons during and after the second wave.

The HIB study was conducted in 9 cities including Delhi, Jaipur, Bangalore, Hyderabad, Bhopal, Mumbai, Kolkata, Patna, Ranchi. The main sample size was over 1,200 respondents (Home Credit customers) in the age group of 21-45, with income below 30,000 per month.

The research report shows a significant shift in consumer borrowing behavior from need-based or survival-based borrowing to want-based borrowing. There was a large increase in borrowing for the creation or expansion of a business (28%), followed by small loans or credits for the purchase of durable consumer goods at 26% of total borrowing. Other positive reasons were home renovation/new construction (13%), medical emergency (2%), vehicle loan (9%), marriage (3%), college loan (2 %), investments and repayment of a previous loan, etc. (1%). The research report shows a sharp drop in borrowing for current household expenditure to 4% in 2021 from 85% last year, showing a shift from need-based borrowing to want-based borrowing.

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Main reasons to borrow (How India Borrows 2021 Survey)
Reasons to borrow

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Reasons to borrow (How India Borrows 2021 Survey)

Another positive has bucked the trend towards digital empowerment. The HIB report indicates that almost 40% of borrowers have shown a willingness to switch to digital platforms to take out loans, namely more than 15% of customers who have already switched to online lending instead of traditional offline channels. While technology was a key enabler, survey results reveal that, like all digital trends, familiarity and trust in chatbots is governed by age – with younger customers leading the way.

Lending Channel Preference

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Lending Channel Preference (How India Borrows 2021 Survey)

Vivek Kumar Sinha, Marketing Director, Home Credit India, said: “The annual in-house consumer borrowing trend study, How India Borrows 2021, indicates the recovery of positive borrowing as people struggle to come back from the varied losses suffered in the pandemic year 2020. This consumer resilience is reflected in the increased borrowing of business loans, home improvement and other positive reasons compared to borrowing primarily to meet the needs of households and families in 2020. The pandemic has also led to the acceleration of digitalization as an increasing number of borrowers show a preference for adopting an online lending journey for their future borrowings, thus reinforcing digital empowerment in the financial services, although the penetration of financial literacy is still in progress.

With many people experiencing job loss, pay cuts, this has led to increased consumer needs for business resumption this year. Regionally, the survey results highlight that Bengaluru and Hyderabad recovered faster from the pandemic, with 41% of respondents in Hyderabad taking loans for business recovery and 42% of respondents in Bengaluru for purchases of durable consumer goods.

While states like Bihar and Jharkhand have the lowest internet population at 24% and 29%, respectively, digital literacy in terms of mobile phone usage in Patna and Ranchi has been recorded at 64% and 65% , respectively.

The research also revealed that Kolkata and Delhi have a higher proportion of female borrowers compared to cities like Jaipur. Respondents interviewed during the research highlighted that getting a grip and guidance on financial and digital literacy will ensure their lending journey is hassle-free and independent.

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