4 min readMumbaiUpdated: Jul 31, 2026 10:23 AM IST
India’s decade-long expansion in formal credit has brought millions of first-time borrowers into the banking system, but the next phase of growth could be far more challenging as rising consumer indebtedness, slowing borrower growth and shrinking participation by first-time borrowers emerge as key concerns, according to a TransUnion CIBIL study.
A big warning sign is the steady increase in financially stretched borrowers. The share of over-leveraged consumers rose threefold — from 5% in the financial year 2017 (FY17) to 18% in FY24 — before easing marginally to 15% in FY26 after industry intervention, says the Cibil report, Unlocking Access: Journey of Credit Expansion in India.
The excessive borrowing is concentrated largely among younger consumers, who have also been the fastest-growing segment of India’s retail credit market.
Another concern is the sharp slowdown in the pace of expansion of active borrowers.
The proportion of credit-active consumers within the credit-eligible population also increased during this period, from 11% in March 2017 to 28% in March 2026.
However, the compounded annual growth rate of the credit-active consumer base moderated from 14% during the March 2017–March 2019 period to 9% during March 2024-March 2026 period, suggesting that the easy gains from financial inclusion may be tapering off, Cibil said.
The pipeline of new borrowers is also shrinking.
New-to-credit (NTC) consumers accounted for 32% of retail loan originations in 2017 but their share has fallen to just 13% by 2026. This indicates that lenders are increasingly relying on repeat borrowers instead of expanding the formal credit net to households that have never borrowed before.
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“These numbers indicate significant opportunity to both deepen engagement with those already within the credit fold, and to bring new consumers into the formal credit ecosystem,” Cibil said.
The nature of borrowing has also undergone a significant shift.
Consumption credit — including personal loans, credit cards and consumer durable finance — has emerged as the dominant segment, with the share of active borrowers holding such products increasing from 34% to 51% over the period.
Commercial lending
The study also flags concerns in the commercial lending ecosystem. The share of entities that have accessed commercial credit declined from 50% to 41%, the credit-active share dipped from 10% to 9% and NTC also went down from 60% to 39% between quarter ended March 2021 and quarter ended March 2026.
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This indicates further capacity to bring eligible enterprises and medium, small and micro entrepreneurs into formal credit, it said.
This also shows that millions of micro and small enterprises continue to remain outside the organised credit system despite improved creditworthiness.
Credit map
Geographically, the report finds that 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 beyond the country’s established economic centres, it also places greater responsibility on lenders to maintain underwriting standards as lending expands rapidly into relatively newer markets.
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Expansion of formal finance
The report nevertheless highlights the remarkable expansion of formal finance. The share of credit-eligible Indians who have borrowed at least once has increased from 35% in 2017 to 74% in 2026, while credit monitoring has risen sharply, pointing to growing financial awareness. Women borrowers increased their share from 22% in March 2017 to 30% in March 2026, while that of young borrowers rose from 33% to 39% in the same period.
“What also stands out is how India’s state-wise credit heatmap has undergone a gradual but clear shift. While the traditionally dominant states in west and south India continue their strong credit uptake, states in north and central India have seen a remarkable rise in credit participation,” said Bhavesh Jain, MD and CEO, TransUnion CIBIL.
The changes in wallet composition point to how credit is being increasingly seen as a means to drive a lifestyle-driven approach today, compared to the asset-based approach seen a decade ago, he said.