Swipe, Spend, Repeat: India's Credit Culture In Transition
Introduction:
India is one of the fastest-growing economies in the world but there exists a significant gap in accessing formal credit, especially when compared to other developed nations. Banks and financial institutions (FIs) are working on filling this gap by introducing new payments products and instruments that would make it easier to access formal credit.
Traditionally, formal credit was restricted to financial products such as home, auto and personal loans. However, banks and FIs have recently shifted their focus towards instruments like credit cards, buy now, pay later (BNPL) and credit EMIs. New FinTech players have disrupted the market by introducing new and innovative products and offerings to consumers.
Credit cards, BNPL and credit EMIs have witnessed large-scale issuance and growth in usage. Traditional banks and new start-ups are focusing on acquiring new customers by allowing access to credit for the unbanked/underserved segment.
Credit Usage and Growth:
Credit in India is undergoing a profound transformation. We see the signs in surging credit card volumes, Buy Now Pay Later (BNPL) schemes, and deepening fintech penetration.
The shift is not just reshaping financial
behaviour. It is embedding credit into the fabric of everyday life across urban
and regional India. As per CEIC’s data, India’s domestic credit has more than
doubled from around $1,500 billion in 2015 to $3,168.1 billion by December
2024.
According to studies, this is a generational behaviour shift. A 2025 Paisabazaar report shows consumers are beginning their credit journey earlier than at any time in the past:
- If you were born in the 1960s, your first loan was probably around age 47, usually to buy a home.
- But the 1970s and 1980s-born borrowers did this by 34, only to buy a car.
- And for the 1990s-born, that age has dropped even further, between ages 25 and 26! Their entry points were also more diverse, from credit cards, personal loans, consumer durable loans, to auto loans.
This is also reflected in India’s recent credit card and
BNPL boom. Credit card payments in India grew from 50 million transactions in
2014 to 350 million by late 2024 (CEIC, 2025), which is worth a whopping ₹1.56
lakh crore. To put that number in perspective, it is almost 2x India’s annual
expenditure on healthcare in 2024!
India’s BNPL sector is also striding forward and is expected
to reach ₹85,000 crores in 2025. What’s more, the integration of pre-approved
credit lines into the Unified Payments Interface (UPI) could further
revolutionise small-ticket credit consumption, as it expands access to formal
credit to over 300 million active UPI users.
Credit Risks and Traps:
- Debt Traps for Youth: Financial literacy remains low. Less than 27% of Indians are financially literate, and only 14% of urban students have exposure to structured financial education. This leaves young, first-time borrowers vulnerable to debt traps.
- First-Time Borrowers: Lenders have tightened access for new-to-credit consumers, with loan originations for them dropping 21% YoY in late 2024. Gen Z, making up 41% of first- time borrowers, is hit hardest.
- BNPL and Instant Loans: BNPL schemes, while convenient, can lead to high effective interest rates (30–40% annually if deadlines are missed) and unmanageable debt. Around 20% of BNPL users have seen their credit scores decline due to missed payments.
- Systemic Risks: Unsecured loans accounted for 51.9% of new NPAs in the retail portfolio in 2025, raising concerns about potential systemic risk if not effectively monitored.
- Defaulters: As young Indians take more loans to fulfil their aspirations, India's unsecured loans are rising. This is also accompanied by an increase in defaults on loans, especially the ones without collateral security. In 2025, credit card defaults rose by 28% YoY to touch Rs 6,742 crore. This could have a serious impact on the economy.
India’s retail credit growth continued to moderate in the
quarter ending December 2024, particularly among New-to-Credit (NTC) consumers.
This was most evident for consumption-led credit products originated by NTC
consumers, which saw a 21% year-over-year (YoY) decline in loan originations,
compared to a decline of 2% for consumers with existing credit.
Younger generations formed the largest cohort of NTC
consumers, with Gen Z (born in 1995 or later) comprising 41%. The share of
women borrowers stood at 37% of NTC originations, which was higher than the
share of women among Existing to Credit (ETC) borrowers at 27%. Of NTC
consumers, 32% were from rural geographies, while 23% of ETC consumers were
from rural geographies.
The higher percentage of women among NTC originations compared to ETC originations, along with the notable presence of NTC consumers from rural areas, highlights efforts by lenders to reach and support these important demographics.
These efforts demonstrate a commitment to fostering
financial inclusion and ensuring that more individuals have the opportunity to
participate in the formal credit system.
The continued moderation in credit supply over the last four consecutive quarters led to the YoY growth in credit-active consumers slowing down to 9% in December 2024 from 16% in December 2023.
According to World Bank
data, as of December 2024, India’s credit-eligible population – consumers aged
18-80 years – stood at approximately 1,036 million, yet only 27% (around 277
million) use formal credit facilities. Approximately 451 million Indians have
limited or no formal credit facilities.
Regulation and Awareness:
As credit adoption surges, the RBI has tightened regulations. It is raising risk weights on unsecured loans and credit card dues, setting exposure limits, and enforcing stricter KYC and data privacy norms to rein in excessive lending and systemic risk.
Meanwhile, credit score awareness is booming. As of March 2024, 119 million Indians checked their CIBIL scores annually. That’s a 51% jump year-on-year, with the majority of new users from non-metro regions and 70% growth among women.
Banks and regulators are also investing in credit counselling and financial education, both online and through dedicated centres, promoting responsible borrowing and long-term financial health.
Conclusion
Over the last decade, the credit industry in India has grown tremendously, driven by technological and structural advancements. The rapid rise of digital lending products, BNPL, and UPI linked credit lines signals a democratization of access to mass-market including women, rural populations, and new-to-credit youth to participate in formal credit system.
But, at the same time, the rapid growth brings significant challenges like rising defaults, debt traps among younger and new-to-credit consumers, and the increasing burden of unsecured loans highlight the risks of unchecked growth.
Although fintechs have been introducing innovative changes for the growth of credit industry by leveraging bank data and API stacks to provide tailored offerings that expand credit accessibility.
In essence, India is entering a credit revolution and future of credit culture will depend on three key factors innovation including lending to underserved segments, financial literacy programs for spreading awareness to avoid debt traps and managing credit and regulated oversight by the RBI to ensure responsible lending. If these efforts align effectively, India’s credit culture can evolve into a resilient and inclusive ecosystem that fuels economic growth without compromising financial stability.
References:
https://www.linkedin.com/pulse/when-credit-becomes-culture-inside-indias-financial-shift-gllie
https://vajiramandravi.com/current-affairs/rising-consumer-credit-in-india/
https://marcellus.in/newsletter/marcellus-erudite/the-consumerization-of-credit-in-india/
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