India’s Gen Z Consumers Are Not Big Borrowers...Yet. 

India is home to the world’s biggest under-24 population — yet, the proportion of young borrowers in the country is low. For now.

Of the 609 million Indians below the age of 24 years as of 2019, 147 million are eligible to apply for credit, according to a recent study by TransUnion CIBIL. But only 9 million people, or 6 percent, are “credit active” or have availed some form of credit. That’s the smallest percentage among Canada, Columbia, Hong Kong, South Africa and the U.S.

“In emerging markets, lenders may be more conservative with extending traditional credit products to Gen Z, as those consumers may not yet have credit histories and track records those lenders use to assess and manage risk,” said Abhay Kelkar, vice president of research and consulting at TransUnion CIBIL.

This may change as India’s credit culture evolves. Over the last few years, lenders, particularly non-bank lenders, have targeted younger customers with all kinds of EMI schemes on products ranging from consumer durables to food.

Most Popular Credit Products

Among the credit-active Gen Z Indians, 80 percent have one outstanding loan. Two-wheeler loans are the most popular, followed by consumer durable loans and credit cards, the study said.

Two-wheeler loans account for 21 percent of all credit products for Gen Z consumers, while it’s just 10 percent for Indian millennials (those between 24-40) and less than 6 percent for Gen X Indians (those between 40-55).

For the Gen Z consumers, credit card participation is growing but remains low compared to the wider national average. Only 11 percent of Gen Z consumers have credit card compared with 21 percent of the adult Indian population, the study said.

Also, Gen Z Indians avail consumer durable loans mainly to buy a smartphone, personal computer, laptop, or a television. But older generations would avail the loan to buy household appliances like refrigerators or washing machines, CIBIL said.

Are Gen Z Indians More Risky?

The common notion is that Gen Z consumers have lower credit score than the national average as they are new to credit and generally have just begun their careers or are still completing their education.

But the study found that 51 percent credit-active Gen Z Indians has a credit score in the “prime” and above risk tiers, in line with the national average.

Gen Z Credit Users Rising Fast

While the current proportion of Gen Z consumers using credit may be low, this is changing rapidly, the study showed.

For Indian Gen Z consumers, originations—the rate at which new accounts are being opened—are growing at the fastest pace in the consumption lending categories. In 2019, originations in credit card grew 150 percent year-on-year, followed by 113 percent for consumer durables and 95 percent for personal loans, according to the study.

Personal loans and credit cards are often used to finance living expenses and make smaller-ticket purchases. In the personal loans space especially, the prevalence of non-banking financial companies and the rapid growth of fintech lenders has accelerated the availability and ease of application for this credit product, the study said.

“Lenders that incorporate trended credit and alternative data can gain a better understanding of the specific risk profiles of Gen Z and as a result, are broadly able to provide more consumers with access to traditional credit products,” Kelkar said.

“Our belief is that the desire for credit among this generation is significant and growing at a faster pace than any other generation. As well, the way they apply for and use credit will likely generate an even greater level of demand.”