Personal loans have replaced credit cards as the top choice for first-time borrowers in India, according to TransUnion CIBIL data. While this shift reflects changing consumer habits fueled by digital payments, credit card delinquency remains stable at a low 1.7%, suggesting a resilient retail lending sector.
The Indian consumer credit sector is experiencing a fundamental shift in how individuals first enter the borrowing market. New data from TransUnion CIBIL indicates that personal loans and consumer finance products have overtaken credit cards as the preferred entry point for people taking on their first credit facilities. This transition marks a departure from historical trends where credit cards were the primary tool for establishing a credit history.
Shift in Credit Portfolio Composition
Financial data shows a clear evolution in borrower behavior over the past decade. In 2016, credit cards represented 56% of consumption lending in India. By 2026, that share has declined to 38%. This change is driven by younger consumers who are opting for a mix of credit products early on, such as consumer durable loans, personal loans, and 'Buy Now, Pay Later' (BNPL) schemes. Because these options are often integrated directly into digital payment platforms, they have become more accessible than traditional credit cards for many first-time users.
Impact of Digital Payment Ecosystems
The widespread adoption of digital payment infrastructure, particularly UPI, has reshaped the competitive environment for lenders. While credit cards are restricted to merchants with physical point-of-sale (POS) terminals—totaling approximately 11 million nationwide—UPI is accepted at nearly 600 million points. This massive accessibility gap allows personal loan products and consumer finance to reach customers who were previously underserved by the credit card network. For lenders, this means the focus is moving toward managing a broader credit portfolio for each customer rather than just issuing a single plastic card.
Stability and Market Saturation
Despite the decline in the credit card's share of new borrower acquisition, the market itself is not showing signs of stress. The number of credit card holders has plateaued at roughly 52 million, with about 70% of new cards being issued to people who already own at least one. This suggests a phase of market saturation for existing card issuers. Crucially, the quality of credit remains strong, with delinquency rates for credit cards falling to 1.7%. This indicates that even as borrowing habits change, current cardholders are effectively managing their debt obligations.
Future Outlook for Lenders
While the competition for 'new-to-credit' customers has become more complex, significant growth potential remains. With only one-quarter of India's credit-active population currently holding a credit card, there is still substantial room for penetration in both urban and semi-urban areas. The next phase of competition for banks and non-banking financial companies (NBFCs) will likely be defined by their ability to transition from simple product providers to long-term financial partners. Investors may track how major credit card issuers adapt their customer acquisition strategies and whether they shift focus toward deeper integration with digital loan products to maintain their market share.