India has witnessed strong demand-led credit growth over the past few years. Retail lending continues to drive this growth story, while MSME credit is gaining momentum, and lenders across segments remain focused on growing their loan books.
According to the latest industry report by , the retail lending book has grown by over 14% year-on-year. While this seems like an encouraging trend, India’s household debt ratio remains approximately 41–42% of GDP.
So India remains structurally under-leveraged relative to advanced and many emerging economies. Thus, the important question is whether we are seeing the full extent of credit demand in the economy, or only the portion that is easiest to measure and serve?
Existing borrowers
Much of the lending industry still focuses on repeat lending to existing borrowers who are familiar with the lenders. Borrowers with stable salaries, established credit histories, and formal income documentation remain the core of most lending portfolios. They are easier to assess, onboard, and monitor. As a result, a significant share of innovation and product design continues to revolve around these borrowers.
However, the next wave of credit growth is likely to emerge from segments that have historically been underserved, overlooked, or difficult to evaluate through conventional methods. Today, only about 17.8% of new loans are disbursed to first-time borrowers.
India has the largest Gen Z and Gen Alpha populations, yet only 41% of new-to-credit borrowers are from these generations. This underscores that many older people have yet to begin their formal credit journeys. The segments that lie in these unserved groups are self-employed entrepreneurs running growing businesses from small towns, women building enterprises from home, participating in the digital economy, or managing household finances with increasing financial independence.
New to credit
Many of them are currently using credit from informal sources such as friends and family or local moneylenders. Many of these borrowers continue to fall into the category often described as thin-file or . They may have income, economic activity, and repayment capacity, but lack the traditional credit histories that many underwriting models rely on, resulting in limited access to formal credit despite their economic activity in the system.
This remains an area for further development. Risk assessment frameworks have historically been built around a relatively narrow view of borrower behaviour. , income documents, and past borrowing records remain valuable tools, but they may not fully capture the realities of emerging borrower segments. If lenders continue to rely heavily on traditional indicators despite access to alternative data, they risk overlooking a substantial portion of future credit demand.
The ask is not to lower risk standards, but to improve how risk is understood.
Smartphones, , e-commerce platforms, and online financial services have become deeply embedded in daily life. Millions of individuals who previously had limited interaction with formal financial institutions now leave behind digital footprints that can help establish financial behaviour and economic activity.
Also, initiatives such as , digital payments, e-invoicing, and increasing business digitisation have created more data trails for small businesses and self-employed individuals. Economic activity that was once difficult to assess is becoming more transparent and measurable. The third is the growing availability of data. Lenders today have access to information sources that barely existed a decade ago. Transaction data, payment patterns, business cash flows, digital commerce activity, and account aggregators are gradually expanding the information available for credit assessment. Taken together, these developments are creating the foundation for a much larger and more diverse borrower base. Yet a large gap remains between the demand for credit and many borrowers’ ability to access it.
Instead of relying heavily on borrowers’ credit history, lenders can assess how a business actually earns, spends, and manages money using transaction data and other alternative data sources. This can help build a clearer picture of creditworthiness, especially for borrowers with limited credit histories, and, with advanced analytics, identify repayment capacity that traditional credit assessment methods may miss.
More importantly, expanding credit access also requires new lending approaches, thoughtful product design, and a deeper understanding of how these emerging borrower segments operate.
The next phase of lending growth will look very different from the last. It will be less concentrated in familiar urban markets and more distributed across geographies, professions, and borrower profiles. It will be driven as much by first-time borrowers and small entrepreneurs as by established consumers.
For lenders, the question is not whether this demand exists. The question is whether current models are equipped to identify it. Those who broaden their view of creditworthiness and embrace new approaches to risk assessment may discover that the next major growth opportunity has been hiding in plain sight all along.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial, legal, or professional advice. While every effort has been made to ensure accuracy, readers should verify details independently and consult relevant professionals before making financial decisions. The views expressed are based on current industry trends and regulatory frameworks, which may change over time. Neither the author nor the publisher is responsible for any decisions based on this content.
Sachin Seth, Regional Managing Director, CRIF India & South Asia