Banks Pivot to Affluent Customers for Personal Loans as Regulatory Concerns Mount
The classic banking adage about lending umbrellas only when the sun shines is taking on new meaning in India's personal loan market. Following significant regulatory pushback against the rapid growth of unsecured lending, financial institutions are now strategically focusing their lending efforts on customers who already possess substantial financial resources, rather than those in dire need.
Changing Borrower Profiles in Personal Lending
"The profile of customers who are actually borrowing is shifting noticeably," explained Amit Pathak, head of personal loans and consumer lending at Kotak Mahindra Bank. "We're seeing movement toward more mass affluent and affluent categories rather than being limited exclusively to the traditionally needy category."
This strategic repositioning comes as both regulators and lenders express growing wariness about small-ticket personal loans that proliferated through digital lending platforms but subsequently experienced concerning delinquency rates.
Tightened Underwriting Standards
"Banks have substantially tightened their underwriting processes for personal loans," confirmed Aditya Chatterjee, Managing Director of Equifax Credit Information Services. "Financial institutions are now reluctant to provide unsecured personal loans to new-to-credit borrowers or issue credit cards unless those individuals already maintain an established relationship with the bank."
Despite these stricter requirements, bankers are discovering that the instant nature of modern personal loans continues to attract even those borrowers with sufficient savings, primarily due to the unparalleled convenience factor.
Behavioral Shift Among Savers
"Rather than dipping into existing investments, people have started borrowing to meet their financial needs," Pathak elaborated. "This represents a very strong emerging trend in consumer behavior." According to his observations, personal loans are no longer viewed with the traditional stigma, and savers increasingly prefer to keep their long-term investments in mutual funds and fixed income instruments intact rather than breaking into their savings for immediate expenses.
Purpose-Driven Borrowing
Pathak further detailed that contemporary borrowing typically targets specific purposes such as home renovation or education expenses—both increasingly perceived as value-adding investments rather than mere expenditures. Additionally, consumers are borrowing for "experience" categories including international travel, while traditional reasons like wedding expenses continue to remain significant drivers of personal loan demand.
Technological Enablement of Instant Lending
One crucial factor driving this borrowing behavior is the near-instantaneous decision-making process enabled by modern technology. "The API connection—the software bridge with the bank—provides the credit bureau report within two seconds, and the entire approval flow typically completes in just 10 to 15 seconds," Chatterjee revealed about the streamlined digital lending process.
Furthermore, for customers who maintain substantial relationship value with their banks, lenders are increasingly willing to offer personal loans at highly competitive single-digit interest rates—sometimes just two percentage points higher than prevailing home loan rates.
This evolving landscape represents a fundamental transformation in how both banks and borrowers approach personal credit, with convenience, technological efficiency, and strategic financial management driving new patterns in India's consumer lending ecosystem.
