Bad credit score: Millennials spawning next wave of NPAs for banks?

Topics Bad loans | NPA | loans

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

The number of millennials, - those born after 1980 - opting for a new loan grew 58 per cent as against a 14 per cent growth in the non-millennial segment, a study by credit bureau TransUnion- Cibil said on Tuesday.

Lenders are increasingly depending on the retail segment for their loan growth as its quality is better than the corporate segment which is shying away from investing having already sitting with bloated balance-sheets.

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

In what displays increasing consumption-oriented tendencies in this segment, the Cibil study said unsecured loans consisting of credit cards, personal loans and consumer durable loans contribute 72 per cent of the millennials' credit requirements.

As compared to this, the secured loans of two-wheeler and auto loans consisted of only 9 per cent of the millennials' credit appetite, the study said.

However, it what can assuage the concerns, the bureau report said the millennial segment is more conscious about their credit scores, as they believe in self-monitoring and the average is 740 out of 900. Millennials in Gujarat have the highest average score of 747, followed by Haryana at 743 and Rajasthan at 742, it said.

The bureau also said that millennials have a tendency to correct their behaviour, as 51 per cent of them with a score of less than 700 improved their scores within six months of checking their scores by an average of 65 points.



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel