Understanding the Borrowing Patterns of Gen Z and Millennials

India’s borrowing market is still at a nascent stage, and banks and financial institutions like the NBFCs still have a long way to go. To put things in perspective, the housing debt of India is on an average of $900 as of 2022.

Whereas for China it’s $7800, and for the UK and the US, it’s $39,000, and $58,000 respectively. It shows that more Indians are still not served with proper banking facilities, and the country’s financial institutions have a lot of headspace to grow in this sector.

One such trend can be noticed where we can see that people are now taking credit cards, and the rise of credit cards at merchant shops has increased significantly. India’s lending market is now in a sweet spot where it has further room to expand as the work population of the country and median age are low. It means more people will become financially capable, and they will be the ones who will crash land into the era of digital banking where lending will play a big part.

In today’s blog, we will look at Gen Z and millennials’ borrowing habits and check how much each group has in debt, which can be traced to the new data that the banks are posting.

Understanding the Lending Pattern of India’s Banks

Indian banks are poised to find the next growth. As of now, the market is bifurcated between traditional banks, digital lenders, and microfinance institutions, which target different groups for their business.

For example, there is a best app for DSA from where one can get an agent, and based on their credit profile they can choose a platform from which one can get the credit. For example, a person who is wealthy or affluent can easily avail the credit services from traditional banks.

The middle-income earners, the ones who used to take active credit, and the ones who are underserved are mostly targeted by digital banks such as the fintech companies and also through the NBFCs, who can provide these customers loans.

Comparing the Choices of Personal Loans and Credit Cards

Certain choices are inherently different from the Gen Zs and the Millennials as the consumption habits of both these generations are different. They are the ones who are now actively entering the workforce, and therefore, this new demography is something that the banks are targeting.

For example, among the millennials, the total of credit card spending and personal loans is 51%, where a credit card is 30% and the rest is personal loans. However, among Gen Z, credit card and personal loan borrowings stand at a staggering 67%, which shows the rising popularity of this credit facility among Gen Zs.

The millennials are also into auto loans, consumer durables, home loans, and business loans. However, the mix between them is quite equal. However, for Gen Z, the auto loan stands at 14% as of the financial year 2024.

How Gen Z’s are Leading the Borrowing Curve

The above representation shows that Gen Zs’ borrowing patterns are more consumer-oriented, as they love to spend more. Therefore, this group’s credit consumption is more interested in personal loans and high usage of credit cards.

It’s also a good sign for the lending industry, as Gen Zs are more into consumption, which makes them adopt digital lending infrastructure where loans are disbursed quickly. The banks can also employ a loan DSA partner who facilitates the loan process by helping potential customers get loans and also bringing the banks new customers.

The Digital Lending Heatmap

Digital lending shows the consumption difference for both generations. For example, taking the category of personal loans shows that millennials are in a better position financially as they don’t need many personal loans. For Gen Zs, it’s the start of their professional careers, and to fulfill their consumption needs, it’s personal loans that help them.

This change in lending patterns shows that banks and NBFCs are prone to making more profits and finding growth in this market compared to developed nations worldwide.

Hence, digital lending allows banks to bring the next phase of growth to India’s credit economy.