Why retail credit is galloping in India

MUMBAI: The surge in retail credit in India rests on a quiet infrastructural shift-the growing ability of lenders to judge creditworthiness of borrowers quickly and cheaply. What has made this possible is a dramatic fall in the cost of obtaining credit reports, aided by digital scale and the proliferation of fintech platforms that allow consumers to access their credit scores with ease.

In India, the cost of pulling a credit report is roughly a thousandth of what it is in Western markets, a disparity made possible by the vast size of the borrower base and the volume of queries generated by widespread availability of free credit-score services through financial apps.

Until the pandemic, personal loans ranked as the third-largest segment in India's outstanding credit. By 2021, however, personal loans had overtaken lending to the services sector to become the second-largest category. A year later they surpassed even that, emerging as the largest category of loans. The shift coincided with a wave of consumer-facing platforms offering free access to credit scores. In 2020 Paytm enabled users to check their scores through PAN verification.

By 2023 Google Pay and PhonePe had followed suit with similar offerings. "Today almost every app-Amazon Pay, PhonePe, Google Pay, CRED-offers a credit score. Consumers can pull their credit report free from these platforms," said Aditya B Chatterjee, MD of Equifax India, the local arm of the global credit information bureau.

India's retail credit bureau now counts roughly 30 crore active consumers, within a broader base of 50-55 crore individuals. In terms of sheer volume, Chatterjee notes, there is no comparable market. That scale has transformed the economics of credit reporting.

Whereas a credit report in India may cost only a few rupees, in markets such as Britain the equivalent can run into several thousand rupees. "In India the volumes are huge but the unit economics are very low," Chatterjee said.

The couple of rupees is also borne by the fintech app who pays the fee to the bureau for a query from its app user, for the customer credit histories are mostly free.

The spread of free credit-score tools has also altered consumer behaviour. Many borrowers now check their credit reports regularly, often once every few months and sometimes every quarter.

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