Gen Z, Millenials Drive Growth In Retail Credit Market Of India; Will This Trend Continue?

In the new age of borrowing, lending has become as easy as placing an order for your grocery item. Digital lending has done away with queue arrangements to get your loans sanctioned, passed, and into your accounts - now it happens in just about a few taps on your smartphone, and there comes your money. As per a report by Redseer Strategy Consultants, digital lending is projected to account for 5 per cent of the country’s total retail loans by financial year 2028. This would be an uptick from 1.8 per cent in FY22 and approximately 2.5 per cent in FY24.

But who is at the forefront of leading the surge in such digital lending? As per the report, Gen Z (18-25) and millennials (26-38) are the primary drivers of this trend.

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Millennials Are Borrowing Most!

The report projects that digital lending is expected to double by 5 per cent of total retail loans by financial year 2028 with a growth rate of 40 per cent CAGR.

In FY24, Gen Z took around Rs 4 lakh crore, while millennials borrowed Rs 25-28 lakh crore of the total Rs 62 lakh crore retail loans disbursed. Both groups prefer digital solutions for their financial needs due to the convenience and speed provided by new-age platforms.

Growing room for Gen Z borrowing

The study highlights that Gen Z makes almost 20-25 per cent of the total digital loans disbursed.

- Credit-active Gen Z individuals in India, around 15-20 per cent, showroom for significant growth compared to countries like South Africa (35-40 per cent), China (40-45 per cent), and the USA (75 per cent).

The study says lenders should optimise this opportunity to offer tailored products that can evolve with borrowers' changing needs.

Difference between Gen Z and Millennial borrowing habits

While personal loans make up about 40 per cent of Gen Z’s borrowing, Millennials account for just 21 per cent.

Gen Z is inclined towards loaning for experiential expenses like travel and tech upgrades, Millennials, in contrast, show more rationale towards taking such personal loans.

Where millennials lead in credit card spending by about 30 per cent (of their retail loan disbursals) credit cards are secondary options for Gen Z right after personal loans.

Will the trend continue?

Says Jasbir S Juneja - Partner at Redseer Strategy Consultants, “As Gen Z continues to mature and millennials advance in their careers, the demand for diverse credit products will likely expand. The younger generation’s familiarity with digital platforms will drive further innovation and competition in the lending market."

Traditional banks rule the roost among wealthy

While digital lending booms among the masses, the study says that traditional banks continue to woo the wealthy and remain their first choice when it comes to loaning. On the parallel end of this continuity, instant personal loan services are becoming popular with younger borrowers.

The digital lending platforms offer instant loans easily online, something that clicks and resonates with the tech-savvy Gen Z and millennials.

Due to their lack of credit history and being new entrants into the credit landscape, Gen Z is often overlooked by traditional lenders and categorized as less attractive, the report states.

Borrowing Patterns Per Income Groups: Households earning over Rs 20 lakhs annually have high credit penetration rates and are catered by traditional banks for their diverse credit needs.

Middle-income households (earning around Rs 3-12 lakhs annually) are more credit-active, showing flexibility in using both traditional and digital lending services.

Low-income households (earning below Rs 2.8 lakhs annually) are the new promising section of ‘credit card users’, being catered to by digital lenders.

The Non-bankable Segments, including a part of low-income households, remain largely untapped but hold huge potential in entering the digital lending landscape.

Such a generational shift towards digital lending, driven by Gen Z and millennials holds the potential to further disrupt and shape the future of the retail credit market in India.