India's Credit Boom Ignites: Festive Season Fuels Massive Demand Surge!

Retail Credit Demand Surges in India During Festive Quarter

India's retail credit market experienced a significant boost in demand during the July to September 2025 quarter. According to TransUnion CIBIL's December 2025 Credit Market Report, this surge was primarily driven by GST rationalization, which improved consumer affordability, and a general uplift in consumer sentiment ahead of the crucial festive season.

Demand Gains Concentrated in Consumption

The Credit Market Indicator (CMI), a key gauge of overall credit market health, rose to 99 in the third quarter from 98 in the preceding quarter. This indicates a gradual strengthening of the credit landscape. Demand growth was most pronounced in consumption-led segments. Loans for consumer durables, two-wheeler finance, and automobiles recorded strong year-on-year momentum during the pre-festive period. The CMI demand sub-index climbed to 95 for the quarter ending September 2025, up from 93 a year earlier.

Festive Uptick Fuels Further Growth

An analysis of October trends, which captures the heart of the festive shopping period, showed an even sharper uptick. Indexed demand growth for consumer durable loans surged to 189 in 2025, a significant increase from 128 in 2024. Similarly, two-wheeler and auto loans also posted higher growth rates compared to the previous year, underscoring the impact of festive spending.

Credit Supply Expands, Rural Markets Lead

Credit supply mirrored the rise in demand, with expansion supported by secured lending products and a strategic focus on lending beyond major metropolitan areas. The CMI supply index climbed to 97 in Q3 2025 from 91 a year ago. Consumption loans, excluding credit cards, and gold loans were key drivers of this supply growth. Semi-urban and rural markets continued to outperform, accounting for a substantial 61% of the total credit supply during the quarter, as lenders tapped into regions with consistent borrowing appetite.

Borrower Profiles Shift Positively

An interesting development was the return of new-to-credit consumers to growth territory after a contraction observed last year. Younger borrowers, those under 35 years old, were the main force behind this momentum. This was particularly evident in semi-urban and rural areas, where their year-on-year growth rate doubled to 15%. Even in metro and urban centers, growth among younger borrowers showed improvement following a prior decline.

Asset Quality Stable but Pockets of Stress Emerge

Overall asset quality remained broadly stable, with the CMI performance index increasing to 105 in Q3 2025 from 100 a year earlier, suggesting a steady picture regarding loan defaults. However, the report flagged emerging pockets of stress. Early delinquencies saw an increase in micro loans against property (LAP) and small-ticket housing loans, highlighting the need for closer monitoring of these specific portfolios by lenders.

Lenders Urged for Prudent Risk Management

"GST 2.0 supported consumer sentiment and credit demand during the festive period, but sustaining growth will require responsible lending and early risk identification," stated Bhavesh Jain, Managing Director and CEO of TransUnion CIBIL. The report concludes that while policy support and robust festive demand have buoyed retail credit, financial institutions must balance market expansion with diligent risk management, especially as borrowing increases in developing geographies and among first-time consumers.

Impact

This robust growth in retail credit demand is a positive signal for the Indian economy, indicating strong consumer spending power and confidence. It benefits financial institutions like banks and non-banking financial companies (NBFCs) through increased lending volumes. Sectors reliant on consumer purchases, such as automotive and consumer durables, are likely to see a positive knock-on effect. However, the emergence of stress in specific loan categories warrants cautious optimism and proactive risk management from lenders to ensure sustainable growth and financial stability.

Impact Rating: 7/10

Difficult Terms Explained

• GST rationalisation: Refers to adjustments and simplifications made to India's Goods and Services Tax system to improve its efficiency and fairness.
• Credit Market Indicator (CMI): A composite index used to measure and track the overall health, activity, and trends within the credit market.
• Consumer durable loans: Loans specifically taken by consumers to finance the purchase of long-lasting household goods like refrigerators, televisions, washing machines, and electronics.
• Delinquencies: The state of failing to make required loan payments on time; a precursor to default.
• Micro loans against property (LAP): These are small loans where a borrower uses their property as collateral. The loan amount is typically a fraction of the property's value.
• New-to-credit consumers: Individuals who are borrowing money or using credit facilities for the first time in their financial history.
• Semi-urban and rural markets: Geographical areas outside of major metropolitan cities, encompassing smaller towns and villages.