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New NPA wave? The curious case of millennial loan culture

All eyes on millennials
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All eyes on millennials

Millennials have been driving credit demand by a large margin in the past two years, and in what can potentially raise concerns for lenders, most of them have been taking the riskier unsecured loans, warns a report.

Millennials represent nearly 34% of the Indian population and are the biggest spending generation.

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Red flags
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Red flags

In a recent TransUnion CIBIL market survey, millennials emerged as the fastest growing segment, poised to change the credit landscape with an affinity for credit, financial goals and aspirations.

There have been concerns raised about the financial behaviour of millennials, especially if there are over-leveraging in the process & those raising such flags are pointing to the dipping national savings rate.

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Confessions of a shopaholic
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Confessions of a shopaholic

This group’s credit appetite is fuelled by their aspirations to firstly, upgrade their lifestyles, secondly, purchase vehicles, and thirdly, provide for their families in case of an emergency.

In what displays increasing consumption-oriented tendencies, unsecured loans consisting of credit cards, personal loans and consumer durable loans contribute 72% of the millennials' credit requirements. The aspirational class now wants to explore, go on exotic holidays, buy luxury items, etc., and they don’t shy away from taking loans for such personal needs.

Compared to this, secured loans of two-wheeler and car loans consisted of only 9% of the millennials' credit appetite.

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Credit-conscious consumers
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Credit-conscious consumers

Despite a high appetite for credit, the Cibil study revealed that millennials are one of the most credit-conscious consumer segments in the country.

The number of self-monitoring millennials grew by 58% between 2016 and 2018, becoming one of the most credit-conscious consumer segments, while credit-conscious non–millennial consumers grew by just 14%.

Millennials in Gujarat have the highest average score of 747, followed by Haryana at 743 and Rajasthan at 742, according to the report.

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All-access pass
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All-access pass

Loans are now available instantly thanks to digitisation and the ability to underwrite credit for a customer in real time. For consumers, this means easy access to credit, especially for young first-time borrowers. Millennials by virtue of being more tech friendly have become the biggest category of the digital borrowers.

Many new-age products having alternate underwriting models have been introduced to cater to this population.

A large proportion millennials opt for short term personal loans offered by digital lenders and fintechs using alternate data like utility bills, mobile usage etc. This helps them not only meet their impending financial needs, but also begin building their credit profile.

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