ne of the most telling trends in the FY25 credit data is the explosive growth in personal loans across rural and semi-urban areas. Over the past five years, this segment has grown at a CAGR of 13.2%, with the share of personal loans in total bank credit rising from 24.1% to 31%. Several factors have driven this:

• Improved digital credit delivery infrastructure in rural zones

• Proliferation of micro-loan aggregators and fintechs

• Higher aspirations for home ownership, education, and lifestyle upgrades

This credit expansion aligns with broader migration and capital movement patterns, as more individuals and families move away from metros to Tier II and Tier III cities in search of affordable housing, better quality of life, and business opportunities.

Affordability in Housing Finance

Another key enabler of this democratization of credit is the increased affordability of housing loans. The RBI data reveals:

• The share of home loans carrying interest rates above 9% has dropped significantly from 54.5% in 2020 to 36.8% in FY25

• Similarly, high-interest consumer durable loans (11%+) have declined from 50.3% to 47.4%

These reductions are attributed to:

• Low repo rates for much of the past five years

• Government incentives and schemes under PMAY (Pradhan Mantri Awas Yojana)

• Intensified competition among banks and NBFCs for home loan clients

The result has been more affordable EMIs, drawing in new borrowers from non-metro regions, especially among young salaried individuals and self-employed micro-entrepreneurs.

Decentralized Growth: Economic Implications

The decentralization of credit from India’s top six metro cities — Mumbai, Delhi, Bengaluru, Hyderabad, Chennai, and Kolkata — to smaller towns carries broad economic implications:

• Stimulates consumption and investment in underpenetrated regions

• Encourages micro-enterprise development in areas previously cut off from formal credit

• Bridges regional economic disparities, contributing to more balanced national growth

• Reduces overdependence on urban agglomerations, making the financial system more resilient

It also signals a healthy diversification of banking risk, as credit exposure spreads beyond traditional markets.

Digital and Policy Pushes Behind the Trend

Several policy and technological shifts have catalyzed this transition:

• Jan Dhan-Aadhaar-Mobile (JAM) trinity, enabling direct account linkages

• Fintech platforms, which now serve previously unbanked or underbanked populations

• Digital KYC and e-documentation, reducing onboarding time

• Targeted government schemes like MUDRA loans, which provide low-ticket credit for rural entrepreneurs

The role of Digital India initiatives cannot be overstated. More than 80% of rural districts now have access to mobile banking, allowing banks and NBFCs to disburse and recover loans efficiently through mobile apps and UPI.

Conclusion: Credit Democratization Has Arrived

In summary, while metro cities still dominate in terms of banking deposits, the credit footprint of India’s financial system is now broader and more inclusive. With rural and semi-urban regions accounting for a growing share of personal and housing loans, and with digital and policy enablers reducing entry barriers, India’s banking narrative is transforming.

The decline in credit share for metros is not a symptom of weakness, but rather a sign of opportunity and inclusion. It reflects the emergence of Bharat — a more distributed, vibrant, and credit-capable India that’s no longer confined to a few economic centres.

As the credit engines fire up across the nation, and with greater participation of women and smaller towns, the Indian financial ecosystem appears set for more equitable and sustainable growth in the years to come.

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