India's credit growth slows as over-leveraged borrowers triple: CIBIL report

India’s decade-long expansion of formal credit has brought millions of new borrowers into the banking system, but a new study by TransUnion CIBIL suggests the next phase of growth will be more difficult. The report, “Unlocking Access: Journey of Credit Expansion in India,” highlights rising consumer debt, slowing borrower growth, and fewer first-time borrowers as key challenges. Based on credit bureau data from 2017 to 2026, it provides a comprehensive view of how credit behaviour has evolved.

According to the report, the share of over-leveraged consumers—those with excessive debt relative to their income—tripled from 5 per cent in the financial year 2017 (FY17) to 18 per cent in FY24. It eased to 15 per cent in FY26 following industry intervention. The report says this excessive borrowing is most pronounced among younger consumers, who have also been the fastest-growing segment of India’s retail credit market. This trend warrants close monitoring as it could pose risks to both borrowers and lenders.

The pace of credit expansion is also moderating. The proportion of credit-active consumers within the credit-eligible population increased from 11 per cent in March 2017 to 28 per cent in March 2026. However, the compounded annual growth rate of this base slowed from 14 per cent during 2017-19 to 9 per cent during 2024-26. The report attributes this slowdown to a maturing credit market and a higher base, indicating that the easy gains from financial inclusion may be tapering off.

The pipeline of new borrowers is shrinking too. New-to-credit (NTC) consumers accounted for 32 per cent of retail loan originations in 2017, but their share fell to just 13 per cent by 2026. This suggests lenders are increasingly relying on existing customers rather than bringing households that have never borrowed into the formal credit net. The decline in NTC share indicates that financial inclusion efforts may be reaching a plateau, requiring new strategies to attract first-time borrowers.

The nature of borrowing has shifted significantly. Consumption credit—including personal loans, credit cards, and consumer durable finance—has become the dominant segment. The share of active borrowers holding such products rose from 34 per cent to 51 per cent over the period. This shift raises questions about the productive use of borrowed funds and the long-term implications for household financial health.

The report also flags concerns in commercial lending. The share of entities that have accessed commercial credit declined from 50 per cent to 41 per cent, the credit-active share dipped from 10 per cent to 9 per cent, and new-to-credit commercial borrowers fell from 60 per cent to 39 per cent between the quarter ended March 2021 and the quarter ended March 2026. This indicates that millions of micro and small enterprises remain outside the organised credit system despite improved creditworthiness. The report calls for targeted measures to bring eligible enterprises into the formal credit net.

Geographically, India’s credit map is undergoing a structural shift. Uttar Pradesh, Madhya Pradesh, and Bihar have recorded faster growth in credit participation than traditional markets such as Maharashtra and Tamil Nadu. While this reflects widening financial inclusion, it also places greater responsibility on lenders to maintain underwriting standards as lending expands into relatively newer markets.

Despite these concerns, the report highlights the remarkable expansion of formal finance. The share of credit-eligible Indians who have borrowed at least once increased from 35 per cent in 2017 to 74 per cent in 2026, and credit monitoring has risen sharply, pointing to growing financial awareness. Women borrowers increased their share from 22 per cent in March 2017 to 30 per cent in March 2026, while young borrowers rose from 33 per cent to 39 per cent.

The report emphasises that these numbers indicate significant opportunity to deepen engagement with those already within the credit fold and to bring new consumers into the formal credit ecosystem. For policymakers and lenders, the challenge lies in sustaining inclusion while managing the risks of over-indebtedness.