India's retail lending set for multi-decade growth cycle: Report

India's retail lending market is set for a multi-decade growth cycle, driven by digital tech, rising incomes, and financial inclusion, says an Anand Rathi report. Major growth is seen in housing, vehicle, gold, and unsecured lending sectors.

India's retail lending sector is entering a multi-decade growth cycle, supported by digital underwriting, financial inclusion, rising household incomes and expansion of secured credit segments, according to a report released by Anand Rathi Advisors Limited (ARAL).

The report, analyses the evolving landscape of housing finance, vehicle finance, gold loans and unsecured lending, highlighting the growing role of technology, data-driven underwriting and digital distribution in reshaping the credit ecosystem.

According to the report, India is among the fastest-growing retail lending markets globally, aided by low mortgage penetration, underpenetrated vehicle financing and increasing formalisation of gold lending. The report noted that favourable demographics, rapid urbanisation and technology-led credit delivery are expected to support sustained long-term growth.

Low Penetration Driving Growth

The study highlighted that mortgage penetration in India remains at around 11 per cent of GDP, significantly lower than in developed markets, indicating substantial growth potential. It also pointed to rising demand for affordable housing and the increasing adoption of digital underwriting models in the housing finance segment.

Strong Opportunities in Vehicle Finance

In vehicle finance, the report observed strong opportunities across passenger vehicles, commercial vehicles and used vehicle financing. The sector is also expected to benefit from growing electric vehicle adoption and the emergence of captive finance models. India's vehicle loan market is currently growing at an estimated annual rate of 10-12 per cent, the report said.

Formalisation of Gold Lending

The report further underscored the significant opportunity in gold-backed lending. It stated that India's gold loan market is projected to expand from approximately USD 80 billion to USD 158 billion by FY31, driven by increasing formalisation and rising gold prices. Digital lending models and the shift from unorganised lenders to regulated institutions are expected to accelerate this trend.

Technology Reshaping Credit Ecosystem

Highlighting the role of technology, the report said artificial intelligence-led underwriting, digital onboarding, embedded finance and analytics-driven credit assessment are becoming key differentiators for lenders. Co-lending partnerships and platform-based customer acquisition models are also expected to gain traction.

Expert Commentary

Commenting on the findings, Samir Bahl, CEO - Investment Banking, Anand Rathi Advisors Limited, said India's retail lending sector offers one of the most compelling opportunities within the country's financial services ecosystem.

"Low credit penetration across key segments, combined with rapid digital adoption and increasing financial formalisation, creates a multi-decade growth runway. We believe lenders with strong underwriting capabilities, technology-led distribution and diversified funding franchises will be best positioned to create long-term value," he said.

Atul Thakkar, Executive Director - Investment Banking at Anand Rathi Advisors Limited, said the retail lending market is entering a new phase of growth driven by structural demand across housing finance, vehicle finance, gold loans and digitally enabled consumer credit.

Market Outlook and Challenges

The report estimated that the global retail lending market exceeds USD 13.5 trillion and is expected to grow at a compound annual growth rate (CAGR) of 8-10 per cent. It also noted that increasing regulatory oversight, funding differentiation and evolving risk-management frameworks are likely to accelerate consolidation across lending markets.

Despite challenges such as interest-rate cycles, regulatory changes and asset-quality risks, the report maintained that India's retail lending market continues to offer one of the strongest structural growth opportunities within the country's financial services sector. (ANI)

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