Retail Loan Growth Slows Despite Interest Rate Cuts: TransUnion CIBIL Report
Retail loan growth slowed to just 5% in the fourth quarter of FY2025, down from 12% a year earlier, despite the Reserve Bank of India (RBI) cutting benchmark interest rates. According to TransUnion CIBIL's June 2025 Credit Market Report, these factors have caused the Credit Market Indicator (CMI) to fall to a two-year low of 97.
Interest Rate Cuts Did Not Revive Retail Loan Growth
Even after the RBI reduced the benchmark lending rate by 25 basis points to 6.25% in February, the growth of retail loans continued to lag. The retail loan market is expected to remain subdued in Q4 FY2024-25, as the origin of new loans grew at a slower pace of 5%, compared to 12% in March 2024.
Decline in Consumer Demand, Especially Among Younger Borrowers
According to the report, the demand for loans from consumers aged 35 or below has declined significantly. As a result, the share of new-to-credit (NTC) consumers supplied by lenders fell by three percentage points during the same period, as a large proportion of NTC consumers belong to the younger demographic.
Improvement in Loan Performance Indicators
Despite slower growth, the report noted improvements in loan performance, particularly with a consistent month-on-month decline in credit card defaults from January to March 2025.
High-Value Loans See Growth
The report also highlighted that demand for higher-value loans, such as home loans and two-wheeler loans, is increasing. For instance, the share of home loans above ₹1 crore grew by 9% year-on-year in Q4 FY2025, compared to a 7% negative growth in the same period a year ago.
Increase in Two-Wheeler Loan Demand
Similarly, two-wheeler loans of over ₹1.5 lakh saw a 7% increase in demand year-on-year in Q4 FY2025, whereas the previous year had seen a 1% negative growth in this segment.
Key Insights from TransUnion CIBIL Report
- Retail loan growth slowed to 5% in Q4 FY2025, down from 12% in the previous year.
- RBI's interest rate cuts have not significantly impacted retail loan demand.
- Young consumers, especially those under 35, are showing less demand for loans.
- Higher-value loans, particularly home and two-wheeler loans, have shown growth.