\nIs shopping on your mind today? <\/em>
\nGet the funds you need, without any extra fee!<\/em>
\nLoan ke oopar extra loan! <\/em>
\nCash of Rs X lakh is waiting for you!!!!!!<\/em><\/p>\n
These are examples of loan notifications on banking and payment apps I get almost every day. Everybody wants you to borrow of late. This lending frenzy is the result of two trends. The first is that, after getting burned, banks have shifted their lending away from large corporations to retail since 2014. The second trend is that fintech startups have realized that lending is the easiest way to make money in India. Pretty much all fintechs that started with investing, payments, and insurance are now betting big on lending.<\/p>\n
Driven by retail lending, retail credit growth has been scorching hot since bottoming in late 2020. Such has been the shift in lending that retail loans are now the largest part of overall systemic credit. Unsecured personal loans and credit cards have grown the fastest within retail credit.<\/p>\n
![\"\"](\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2023\/07\/image1.png\")
<\/a>Growth in personal loans and credit cards outstanding<\/p><\/div>\n
<\/a>Credit growth to retail sector<\/p><\/div>\n
There\u2019s never been a better time to borrow money. All it takes is a couple of clicks. Credit card loans are growing at 30%, and other personal loans (unsecured loans) are growing at 20%+ year-on-year. I haven\u2019t seen many lending cycles, but I\u2019ve never seen such a frenzied environment. Not to sound alarmist, but this reminds me of the pre-2008 retail mania in housing in the United States.<\/p>\n
I\u2019m unaware if the RBI or the banks disclose credit statistics by age group, but credit bureaus do. Looking at their statistics<\/a>, 50\u201360% of unsecured loans are in the under-35 age group<\/a>. Over 35% of borrowers on fintech apps are first-time<\/a> borrowers, compared to 24% for NBFCs and 22% for banks. I don\u2019t mean to sound alarmist, but this can become an issue in the future, and even RBI thinks so.<\/p>\n The resulting credit concentration in the retail segment can be a source of systemic risk (RBI, 2022). In the long term, such concentration or comovement of portfolio strategies can still result in the emergence of systemic risks. Another retail loan portfolio concentration risk can arise from loan stacking, wherein borrowers can avail of loans from many lenders, which over time can adversely affect the borrower\u2019s capacity to repay. Link<\/a>.<\/em><\/p><\/blockquote>\n As things stand today, retail non-performing assets (NPAs) haven\u2019t spiked yet\u2014non-performing loans build up over time.<\/p>\n SBI Cards, one of India’s largest credit card issuers, has seen its mix of revolvers, or users who only pay the minimum due every month, drop from 40% pre-covid to 24%.<\/p>\n Revolver credit refers to credit card balances that are not paid in full. Transactor credit refers to the balances that are paid in full.<\/p><\/div>\n It\u2019s easy to sound alarmist whenever we talk about debt. A rise in personal and credit card loans doesn\u2019t say much unless you look at granular borrower profiles and the asset side of the household balance sheet. Looking at the big picture, Indian households are not showing any signs of major stress.<\/p>\n Health of Indian households<\/p><\/div>\n Source: RBI<\/em><\/a><\/p>\n But reckless consumer lending booms have almost always ended badly. The great depression of the 1930s<\/a> in the United States, the 2008 housing lending boom, and the 2019 P2P lending bust<\/a> in China are some examples that come to mind.<\/p>\n Household debt to GDP %<\/p><\/div>\n Here\u2019s the household debt to GDP ratio<\/a> of advanced economies. I\u2019ve highlighted the 2005 -2010 period when the UK and the US had massive housing booms and busts, to give you a sense of the crazy buildup in household leverage. In the run-up to the 2008 crisis, households were leveraged to the hilt. Flipping houses had become a passive income-generating activity for the masses. Note that comparisons between emerging and advanced economies are fraught with complications, and household debt to GDP is a very broad metric. So don\u2019t draw too many conclusions.<\/p>\n Whether this consumer lending boom will end in tears remains to be seen. But there are some worrying signs. From the data disclosed by the credit bureaus, personal loans and credit cards have the highest delinquency rates, though they haven\u2019t reached alarming levels yet. The other cause of concern is that it\u2019s never been easier to get a costly loan. From buy now, pay later to marry now, pay later, doing something you will regret is a click away. Payday and predatory loans have been truly democratized. All you have to do is download an app, and you can get a loan with a 40% interest rate in 2 minutes.<\/p>\n Not all high-interest loan products are from reputable lenders. In the last five or so years, there has been an explosion in the number of shady loan apps with interest rates as high as 100\u2013200%. Most of these illegal apps were run by Chinese entities and were charging high-interest rates, as much as <\/span>1000\u20132000%<\/span><\/a>, and that\u2019s not a typo. The model of these illegal loan apps is to entrap people and harass them into paying more than they owe. Collection tactics can often be brutal and have even led to several suicides. The threats range from harassment calls to the contacts on the borrower’s phone to spreading morphed images. Most borrowers on these predatory apps tend to be young people who aren’t financially literate.\u00a0<\/span> https:\/\/twitter.com\/sandygrains\/status\/1675710030128222208?s=20<\/p>\n There\u2019s an increase in small ticket loans<\/a> among young users in the 20\u201335 age bracket. Most of the distressed borrowers also belong to this age group, for obvious reasons\u2014they don\u2019t have a lot of money. This cohort has also been hit the hardest with layoffs and pay cuts in the last couple of years.<\/p>\n You can be the biggest genius on the planet, but if you suck at managing debt, you\u2019ll end up broke. Nothing in life scares me more than being in debt. In fact, I\u2019ll take being broke without debt any day over being in debt. I\u2019ve had the privilege of seeing multiple horror stories of people going broke by borrowing beyond their means in my own family.<\/p>\n I think basic financial literacy is a life skill\u2014emphasis on basic. Financial decisions are a part of everyday life. Not having a basic understanding of credit is asking for trouble. There\u2019s also the fact that credit products become complex over time. The reason I call basic financial literacy a life skill is that just having a basic understanding of saving, investing, and credit can help you avoid an immense amount of grief in life. I saw this tweet recently about paying back credit card dues, and it got me thinking. I\u2019ve seen this with my own friends and family numerous times.<\/p>\n https:\/\/twitter.com\/StableInvestor\/status\/1675734365769445376?s=20<\/p>\n Most debt horror stories are due to two things:<\/p>\n Life is a constant struggle between what we want and what we can afford, saving for tomorrow vs. spending today. Endless desires, limited means. We all know that being content in life is the key to a happy life. That sounds nice in theory, but finding the right balance is devilishly hard in practice. Modern life, for all its conveniences and indulgences, is more complicated than ever. The engine of capitalism runs on arousing desires. If people stop buying all the things they don\u2019t need, the world as we know it will cease to exist.<\/p>\n We all make mistakes with money, and there\u2019s nothing wrong with that. Most of us would have gone through a cycle of spending money on things we thought would make us happy, only to experience disappointment, an empty bank account, or worse, an unaffordable credit card bill. As counterintuitive as it sounds, our memorable lessons come from the mistakes we make, not from gyan in books or from people. In fact, I’d go so far as to say that people should make mistakes when they are young. Doing silly things when you are young and have little money is much better than making mistakes later in life when the stakes are high. The trick is to be kind to yourself and learn from it.<\/p>\n Being mindful about how you use money is important because we don\u2019t think hard about every single decision we make. Most of our decisions and choices are on autopilot, which can get us into trouble. I think lifestyle inflation\u2014the tendency of our expenses to grow with our incomes is the result of not being mindful of money.<\/p>\n My personal finance philosophy is to avoid the risk of ruin at all costs. As the saying goes, you can\u2019t play the game if you aren\u2019t in it. This doesn\u2019t mean being conservative; it means taking care of all the things you can and making peace with the outcome of the things you can\u2019t. For example, you can take care of your health, but you can\u2019t control a critical illness. You can focus on your career, earn well, save, and invest as much as you can sensibly, but you cannot control the returns. It’s the same with your lifestyle. If you let it get out of control, ruin is guaranteed. It\u2019s easier to recover from a small setback than from zero. For that, you need to strive for balance in life; this was the topic of my previous post<\/a>. We can\u2019t have everything. Life is a series of trade-offs.<\/p>\n In a hypothetical world, even if we could have everything, it wouldn\u2019t make our lives any better. You could buy everything you wanted, but it still wouldn\u2019t make you happy because the dopamine rush of buying things wears off quickly. The things that matter the most are the things that add meaning to our lives<\/a>, and not everything we splurge on adds meaning. Put another way, what are the things you will talk about when you are chilling with your friends and having a drink?<\/p>\n Money is like a mirror; it shows us who we are. It exposes our deepest insecurities and highest aspirations. We may not like what we see, but all the money in the world won\u2019t fix that. We all have our insecurities, but one of the most self-destructive tendencies of humans is to deal with their insecurities by spending money. All the money in the world can\u2019t solve our social and emotional insecurities. The sooner you realize that, the lesser the odds of you going bankrupt. The road to looking good, feeling good, wanting the best things, trying to conform, and getting people to like you is paved with a million bankruptcies.<\/p>\n \u201cBe nicer and less flashy. No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you\u2019re more likely to gain those things through kindness and humility than horsepower and chrome.\u201d \u2015 Morgan Housel, The Psychology of Money<\/a><\/em><\/p><\/blockquote>\n The world is a glass house thanks to the internet; nothing is private anymore. From plastic identities to fake looks<\/a> and debt-funded flexes, it\u2019s like everyone is trying to deal with their self-esteem issues and insecurities by constructing fake realities. This generation is the first fully online generation that\u2019s constantly exposed to all the stupidity in the world. Young people recklessly borrow to splurge because they\u2019re influenced by all the wrong things on social media.<\/p>\n Humans are social creatures, and the desire to belong is hardwired. We all face conscious and unconscious pressure to look and act like others so that we can conform and belong. This drive to belong can often be costly. I don\u2019t think we can ever get rid of such insecurities. I think that the best we can do is be conscious. Being at peace with a version of ourselves that we can live with is a lifelong journey.<\/p>\n You can write all the articles in the world asking people not to borrow money they can\u2019t afford, but youthful arrogance is one helluva drug. Maybe the only way they\u2019ll learn is by making costly mistakes.<\/p>\n Source: LiveMint<\/p><\/div>\n Factors that affect your credit score<\/p><\/div>\n You needn\u2019t wait for your salary to celebrate!! Is shopping on your mind today? Get the funds you need, without any extra fee! Loan ke oopar extra loan! Cash of Rs X lakh is waiting for you!!!!!! These are examples of loan notifications on banking and payment apps I get almost every day. Everybody […]<\/p>\n","protected":false},"author":146820,"featured_media":355418,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[532],"tags":[],"class_list":["post-355380","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-subtext"],"yoast_head":"\n<\/a><\/p>\n<\/a><\/a><\/a>Marry now, pay later<\/h3>\n
\n<\/span><\/p>\nDebt literacy<\/h3>\n
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Know thy means<\/h3>\n
Money is a mirror<\/h3>\n
Open house<\/h3>\n
Keepsakes<\/h3>\n
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