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Millennials make hay on loans they cannot repay

In a testament to our consumerist times, millennials seem to be making hay on loans they don't repay.

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In a testament to our consumerist times, millennials seem to be making hay on loans they don't repay.

New job entrants are sourcing loans from banks and non-banking financial companies (NBFCs) to pay for things such as a big party, designer wear, the latest tech toy or a pricey holiday abroad. And delinquencies on such kind of personal loans are rising.

Data from credit bureau Experian shows that millennials contributed to more than 50% of such loans by volume, with their contribution increasing by 7% between 2015 and 2019.

Young graduates (22-26 years) entering the workforce are being lured by banks and NBFCs to take multiple personal loans, and they begin to default when they are unable to manage the substantial payouts to various lenders, the analysis shows.

The credit bureau also observed that even though more millennials (26-40 years) are borrowing, there is no significant increase in average borrowing per customer, indicating that more millennials are entering the formal credit system.



Delinquencies on personal loans have risen by 70% in December 2018 to Rs 36,723 crore in May 2019, while those on consumer loans have risen by 8.3% to Rs 5,280 crore.

"India is a prepaid country. The graduates who join the workforce are new to credit. Often, they do not understand how to manage loans. They end up with multiple loans which is easy to access," said Jonathan Bill, CEO and co-founder of CreditMate, a technology platform for collection of bad debt. Payments bank Paytm is one of CreditMate's biggest investors.

Santosh from Pune typifies many borrowers of an NBFC whose data is with CreditMate. He started his career with a leading automaker. He used personal loans for weekend getaways with family, buying a new two-wheeler and a new cellphone with a zero-interest offer online. Unfortunately, going from zero loans to now servicing three left him with no money for living expenses, which then led to defaults.

"Santosh, like the vast majority of Indians, didn't set out to deliberately default so he needs support and coaching and education to help him manage his situation and get back on track. This is where CreditMate plays a role," said Jonathan.

Born six months back, CreditMate has sourced over Rs 500 crore of loans requiring collection, which includes personal, consumer durable and micro loans to small and medium enterprises. It works with over 150 recovery agencies in the country to help banks and NBFCs to recover dues to the small borrowers and to also educate the young borrowers through its technology platform.

The startup is seeing a lot of delinquencies from first-time borrowers. "These loans are sometimes for frivolous purposes like a vacation or a vanity purchase like a high-end mobile phone or some accessories. Few months into the loan, there is a stress for repayment leading to delinquencies," explained Jonathan.

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