India’s personal loan landscape is undergoing a remarkable transformation, reshaping how millions access credit in the world’s fastest-growing major economy. Personal loans, once approached with caution, have become as routine as morning chai at a local tapri, marking a significant shift in consumer financial behavior.
Market growth and fintech impact
The numbers paint an impressive picture of this evolution. According to Markets and Data, the personal loan market is set for exponential growth – from $8.34 billion in FY2024 to a projected $54 billion by FY2032, advancing at a robust CAGR of 26.55%. This surge reflects not just changing attitudes toward credit but also the increasing accessibility of financial services.
In this new era of lending, fintech companies have emerged as game-changers, particularly in the small-ticket loan segment. Statista’s findings for FY2023 reveal a telling trend: an overwhelming 68% of personal loans disbursed by fintech companies were under Rs 5,000, while 17% fell between Rs 10,000 and Rs 50,000. This concentration on smaller amounts suggests a democratisation of credit, making financial assistance available to a broader segment of the population.
Top 3 key drivers behind surge in demand of personal loan
Hassle-free loan application process: Before the internet, loan applications were tedious and uncertain, requiring in-person visits and extensive paperwork. Now, online platforms enable quick, hassle-free loan processing with minimal documentation. Today, 75% of personal loans are approved digitally in India, ensuring faster, easier access (Source: RBI).
Flexible loan tenure: Personal loans offer flexibility with tenures from 6 to 60 months, empowering borrowers to customise repayment plans while considering potential interest implications. According to a report by Statista, over 60% of personal loan borrowers in India opt for tenures between 12 and 36 months, striking a balance between manageable EMIs and interest obligations.
Debt consolidation with personal loans: The rising demand for personal loans in India stems from financial challenges like credit card debt, offering debt consolidation, lower interest rates, and simplified repayments for better financial discipline. A 2023 TransUnion CIBIL report reveals a 23% year-on-year growth in personal loans in India, largely fueled by their use for debt consolidation and emergency expenses.
Additionally, the report indicates that 20% of personal loan borrowers in India utilise these loans to consolidate credit card debt and other unsecured obligations.
Key challenges confronting India’s bankers and lenders in journey of debt recovery
Increasing default rates: Foremost among these challenges is the rising tide of defaults, particularly among small borrowers juggling multiple loans. This trend is especially concerning in the personal loans and microcredit segments, where over-leveraging has become increasingly common. The situation calls for more robust credit assessment mechanisms and better monitoring systems.
Following RBI rules: The regulatory environment adds another layer of complexity. The Reserve Bank of India (RBI) has implemented stringent guidelines to ensure fair lending practices. These regulations, while necessary, require lenders to maintain a delicate balance between effective recovery and compliance. Banks must now follow elaborate procedures, including providing adequate notice periods and fair opportunities for borrowers to respond before taking serious actions like fraud classification.
Communication gaps: Communication emerges as another critical challenge in this ecosystem. A significant information gap exists between borrowers and collection agencies, creating friction in the recovery process. While many borrowers remain unaware of their rights and obligations, collection agencies struggle with outdated contact information, making the recovery process inefficient and sometimes contentious.
Technology problems: The technological infrastructure of many lending institutions has also failed to keep pace with market growth. Legacy systems and outdated processes hamper efficient loan management and collection efforts. The need for digital transformation is evident, but implementing modern solutions while maintaining operational continuity presents its own set of challenges.
Balancing recovery and ethics: Perhaps the most nuanced challenge is maintaining ethical standards while ensuring effective recovery. Lenders must walk a fine line between pursuing collections and respecting borrower rights. Aggressive recovery tactics, while potentially effective in the short term, can lead to legal complications and severe reputational damage in the long run.
Solutions for future
As the personal loan market evolves, technology-driven solutions are emerging to address the challenges faced by lenders. Modern debt collection platforms are revolutionizing the recovery process through digital transformation and innovative approaches.
Digital process automation: In the evolving landscape of debt recovery, digital process automation has emerged as a cornerstone of efficiency. Advanced field force automation systems now enable lenders to track recovery efforts in real-time, ensuring optimal resource allocation and improved collection outcomes. The integration of predictive analytics helps identify high-risk accounts early, allowing for proactive intervention and strategically optimised collection approaches.
Cost-effective solutions: The financial aspect of debt recovery has been transformed through technology-driven solutions that significantly reduce operational costs. By outsourcing to specialised agencies equipped with advanced systems, lenders can avoid the substantial expenses of maintaining in-house recovery teams. These solutions are inherently scalable, capable of adapting to institutions of all sizes—from small fintech startups to large traditional banks. The automation of routine processes further enhances efficiency, reducing manual intervention and associated costs while improving accuracy.
Enhanced regulatory compliance: Maintaining compliance with regulatory requirements has become significantly more manageable through technological innovation. Modern systems incorporate automated compliance checks that align with RBI guidelines, ensuring every recovery action meets regulatory standards. Systematic documentation and tracking capabilities provide a clear audit trail of all collection activities. Through standardized processes, these systems significantly reduce the risk of legal complications, protecting both the lender’s reputation and regulatory standing.
Customer-centric recovery: Approach the modern approach to debt recovery places the customer experience at its core. Through integrated multi-channel communication systems, borrowers can be reached through their preferred channels, whether SMS, email, or mobile applications. Flexible repayment plans can be tailored to each borrower’s financial situation, acknowledging individual circumstances and capabilities.
Data-driven decision making: The power of data analytics has revolutionised decision-making in the debt recovery process. Dynamic dashboards provide real-time monitoring of collection efforts, offering instant visibility into recovery performance. Sophisticated performance analytics tools help evaluate and optimize collection team effectiveness, identifying areas for improvement and training needs. These insights enable strategic decision-making, allowing lenders to continuously refine their recovery strategies based on concrete data rather than intuition.
Impact on non-performing assets (NPAs)
The implementation of technology-driven collection processes has shown promising results in addressing Indias NPA challenges. According to industry stakeholders and market observations, digital collection strategies have demonstrated measurable improvements in recovery rates, helping institutions better manage their NPAs.
Road ahead
As India’s personal loan market continues its exponential growth, the integration of technology in debt collection becomes increasingly crucial. The future of lending belongs to institutions that can effectively balance growth with prudent risk management, leveraging digital solutions while maintaining ethical standards.
In this evolving landscape, Mobicule, a full-stack debt collection company, is leading the transformation by bridging the gap between traditional collection practices and modern consumer expectations. Their comprehensive digital platforms and data-driven strategies are helping financial institutions transition from conventional recovery methods to more sophisticated, consumer-centric approaches.
The success of India’s personal loan market will increasingly depend on such technological partnerships that can effectively address the dual challenges of scale and complexity. As lending institutions continue to expand their reach, the adoption of comprehensive digital collection solutions becomes not just an advantage but a necessity for sustainable growth in this dynamic market.
Siddharth is a computer engineering graduate from a premier institute of Mumbai University. After working with organizations like Zycus & Mindcraft Siddharth founded Mobicule in the year 2008, with a vision to help organisations leverage the power of mobility and wireless, thereby offering a competitive edge to these organizations by solving business problems. With his passion for technology and entrepreneurial spirit, Siddharth has created Mobicule as a preferred mobility partner for India’s blue-chip organisation with products across 8 industry verticals.
Mobicule is a pioneer in products focussed on mobile field force and has successfully deployed and managed some of the largest mobile field force implementations across sales & distribution, telecom, and BFSI. With its experience and domain knowledge now spanning 2 decades, it has established its niche in debt collection & gamification, digital KYC integrated end-to-end with internal (core banking, rep, CRM) and external systems (credit bureaus, government portals). Backed by strong R&D and adopting the latest and upcoming technologies, it has managed to establish a niche market position.
(The author, Siddharth Agarwal is the founder and managing director of Mobicule Technologies Pvt. Ltd.)
