As the economy slowed during the Covid-19 pandemic, personal loans continued to grow, helping overall bank credit. Recent data put out by the RBI shows that growth in personal loans was higher in States with lower per capita NSDP (Net State Domestic Product) such as Bihar, Jharkhand and Odisha

This is not surprising as there was a reduction in income levels during the pandemic, especially in the unorganised sector. Lower income households may also have turned to credit from banks to tide over the financial difficulty. 

Besides helping in building houses, purchase vehicles and consumer durables, personal loans also help people meet large expenses related to health emergencies, marriage, travel etc. 

An analysis of the RBI’s data on growth in personal loans between FY20 and FY23 shows that the maximum growth has been recorded by Bihar.

Bihar is one of the poorest States with a per capita NSDP of ₹54,111. Outstanding personal loans grew from ₹44,537 crore towards the end of FY20 to ₹82,228 crore by the end of FY23, registering 85 per cent growth.

The second-highest growth was recorded by Odisha (NSDP per capita of ₹1.49 lakh). Next on the list are Telangana (per capita NSDP ₹3.12 lakh), Jharkhand (₹91,874), Andhra Pradesh (₹2.19 lakh), Assam (₹1.18 lakh), Himachal Pradesh (₹2.27 lakh), Uttar Pradesh (₹83,565), Haryana (₹2.96 lakh) and West Bengal (₹1.41 lakh).

The surge in personal loans in States with greater proportion of low-income households such as Bihar, Jharkhand and Uttar Pradesh, can be a cause for concern as their repayment capacity could be limited.  

For a while now, the RBI has been issuing warnings about people’s increased reliance on personal loans. During the October monetary policy announcement, Governor Shaktikanta Das asked lenders to strengthen internal checks to establish safeguards.

Recently, risk weights were increased on unsecured personal loans. 

Maharashtra and the South 

If the total outstanding personal loans are considered, the high-income States are leading, given the higher consumption levels there. Maharashtra, with ₹7.55-lakh crore of personal loans in March 2023, tops the list. The second-highest concentration of personal loans was in Karnataka with ₹3.6-lakh crore. Karnataka was closely followed by its South Indian counterparts — Tamil Nadu (₹3.41-lakh crore) and Telangana (₹2.93-lakh crore).  

The top-10 large States with the most outstanding personal loans include all South Indian States. The outstanding personal loan amount of all five South Indian States combined formed a third of the personal loans outstanding towards the end of FY23. 

Overall growth 

RBI data since FY04 shows that the demand for personal loans from scheduled commercial banks has been increasing steadily in the last 20 years.

FY23 saw a growth of 20 per cent, the highest in the last six financial years. Prior to that, the biggest jump was between FY16 and FY17, during demonetisation.