How credit growth boosts financial inclusion

Ritesh Ranjan, Business Director at Capital One, emphasises that credit plays a vital role in facilitating investment, infrastructure development, and financial inclusion, which are essential for the country’s growth.

India’s credit ecosystem has experienced significant growth in recent years.

According to the Reserve Bank of India, outstanding bank credit reached ₹150 lakh crore ($1.8 trillion) as of August 2024.

This figure stresses the penetration of credit across various sectors, including infrastructure, agriculture, housing, and micro, small, and medium enterprises (MSMEs).

Government initiatives, such as the Pradhan Mantri Mudra Yojana (PMMY), have been pivotal in promoting financial inclusion by providing micro-credit to small businesses.

However, challenges remain, particularly regarding non-performing assets (NPAs) and the difficulty small-scale industries face in accessing affordable credit.

“Despite advancements in digital technology and alternative lending models, there remains a gap in credit accessibility for smaller industries and startups,” Ranjan points out.

To ensure that credit serves as an enabler of growth, it is crucial to develop a more inclusive credit policy that addresses the unique needs of underserved sectors.

The importance of credit has been further highlighted in the post-COVID-19 recovery phase.

Government schemes, such as the Emergency Credit Line Guarantee Scheme (ECLGS), have played a significant role in supporting MSMEs as they recover from the pandemic’s adverse effects.

Ranjan noted that credit is essential in revitalising the economy and facilitating a robust recovery.

In terms of borrowing trends, a recent study by Home Credit India, titled “How India Borrows 2024,” reveals a shift towards aspirational-led borrowing. Key insights indicate that borrowing for consumer durables, such as smartphones and home appliances, surged to 37% in 2024, up from just 1% in 2020. Additionally, business-related loans increased to 21%, driven by government MSME credit schemes.

The trend toward digital adoption is notable, with 65% of borrowers now preferring app-based banking for its convenience. Furthermore, the rise of EMI cards and embedded finance highlights a growing reliance on digital solutions for credit needs.

Ranjan emphasises the need for long-term infrastructure credit to address gaps in India’s infrastructure.

The National Infrastructure Pipeline (NIP), which aims to mobilise an investment of ₹111 lakh crore ($1.35 trillion) from 2020 to 2025, is a crucial initiative in this regard.

“Credit will be a vital enabler for these large-scale infrastructure projects,” he said.