Recognising the impact of digitisation in the country, S&P Global Ratings said that the state-backed digital initiatives will underpin a tripling of Indian retail borrowing by 2030, lifting Indian households' debt to about USD 2.5 trillion or about 34 per cent of GDP.
"Digital Initiatives Could Triple India's Retail Lending By 2030," noted that technology has already boosted India's financial inclusivity, lifting basic savings account ownership to about 77 per cent, up from 35 per cent in 2011.
India's micro-loan borrowers have an average Indian rupee of 35,156 (about USD 400) of borrowing according to the National Bank For Agriculture And Rural Development (Nabard), the rating agency cited in its report.
The growth in retail lending could include an even faster increase in micro-loans, primarily to previously excluded low-income earners, with such loans potentially accounting for about 7 per cent of household debt by 2030, the rating agency said.
The report further underscored the significance of the digitisation process in the country saying that it has enabled mass access to savings accounts and digital payments.
However, it said that the penetration of credit is still underwhelming, adding that just 12 per cent of Indians over the age of 15 had borrowed from a formal financial institution before 2021. This is less than half the global average of 28 per cent, as per the report.
"Borrowing from formal financial institutions among lower earners is even less frequent, meaning many households have little access to capital for investment that might help them escape poverty and, in turn, support India's long-term economic growth, the report added.
The S&P also noted that improved digital payment infrastructure is helping lenders collect payments, reducing barriers to lending-market competition.
"We expect that will strengthen India's economy and provide growth opportunities for the financial sector, " It added.
The report further underscored the significance of the Pradhan Mantri Jan Dhan Yojana, Aadhaar, and Mobile penetration. Going forward, the report hailed the leading position of banks in retail lending.
"Tech-savvy private sector banks and finance companies are leading the growth in retail lending. Finance companies are the dominant player in mass-market loans, accounting for 70 per cent to 85 per cent of loan origination for commercial vehicles, small ticket personal loans, consumer durables, and two-wheel vehicles," the report said which was released earlier this week.
Additionally, the finance companies had a market share of about 40 per cent in affordable housing loans, as of September 2022, according to the report.
The global rating agency observed that finance companies and small finance banks are leading the microfinance segment, which is playing a key role in improving financial inclusion for India's unbanked and underbanked.
The total value of microloans has grown at a compound annual growth rate (CAGR) of 18 per cent for the last three years and now accounts for about 2 per cent of total loans, the report said citing the figures of Equifax, an American multinational consumer credit reporting agency. (ANI)
