Retail credit growth moderated significantly in the quarter ending December 2024, with the slowdown disproportionately affecting new-to-credit (NTC) customers—individuals applying for formal credit for the first time. As lenders tighten their risk assessments amid rising defaults and regulatory changes, fresh applicants are facing greater difficulty in securing loan approvals.
The Reserve Bank of India (RBI) has raised risk weights on personal loans, credit card exposures, and loans to non-banking financial companies (NBFCs) in response to growing defaults, particularly in small-ticket unsecured loans.
This regulatory shift, combined with broader economic uncertainties, has led to stricter due diligence processes by lenders, who are prioritising customers with established repayment records over first-time borrowers.
With banks and NBFCs becoming more selective, NTC customers have limited options. Online financial marketplaces offer alternative borrowing opportunities, including secured loans backed by assets such as gold, property, mutual funds, and insurance policies. These loans, carrying lower risk for lenders, are more accessible to those without a credit history.
The remedies
NTC applicants can also improve their chances by seeking credit from banks where they maintain salary accounts or long-term relationships. Applying with a co-signer or guarantor with an established credit record can further enhance approval prospects. Employer-backed loan schemes present another potential avenue for first-time borrowers.
A secured credit card, issued against a fixed deposit, offers another route to building a credit profile. Responsible usage and timely payments help establish a positive credit history, which can improve future loan eligibility.
First-time borrowers are advised to avoid indiscriminate loan applications, as rejections can negatively impact credit profiles. Applying to multiple lenders in quick succession may signal financial distress and reduce approval chances. Instead, NTC applicants should focus on lenders known for working with new borrowers and time their applications strategically.
As lending conditions tighten and regulatory oversight increases, first-time borrowers face growing challenges in accessing credit. However, careful financial planning, leveraging secured credit options, and establishing relationships with lenders can help them navigate these constraints and build a strong financial foundation.
