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India Today
23-06-2025
- Business
- India Today
Explained: Why many low-income Indian households still rely on moneylenders
India's financial inclusion story has moved forward in many ways over the past decade. More people have bank accounts, digital payments are part of daily life, and fintech has made financial services easier to access. But for many low- and middle-income households, especially those earning under Rs 5 lakh a year, borrowing money remains a challenge. When cash runs short, they still turn to the local moneylender, the nearby shopkeeper, or friends and banking may have reached their neighbourhoods, but formal credit hasn't. A new report from Piramal Enterprises, based on CMIE's Consumer Pyramid Household Survey, brings this gap into focus. The report, authored by Debopam Chaudhuri, Chief Economist, Piramal Enterprises, shows that while access to the banking system has grown, access to credit remains uneven and out of reach for low-income households, informal loans are still far more common than formal ones. In 2021, these households borrowed 2.6 times more from informal sources than from banks or NBFCs. For comparison, that ratio is 0.6 in Brazil and just 0.27 in the US. (Insights from Piramal study) INFORMAL LOANS ON THE RISEThings look even more worrying for those at the bottom of the income ladder. Households earning under Rs 2 lakh a year saw formal borrowing fall by over 4% a year between FY19 and FY23. Informal borrowing in the same group grew by almost 6% each in the Rs 2–10 lakh range, more households are turning to both formal and informal credit. In other words, banks aren't replacing moneylenders; they're just another option, often not the explains this persistent pull of the informal credit system?One big reason is that many borrowers simply don't fit into the banking system's boxes. They don't have stable jobs, payslips, or a strong credit the pandemic hit, reverse migration increased the number of people in agricultural and informal work — jobs that banks view as risky. These workers needed credit, but banks stepped back. Informal lenders moved in, as they always problem is that borrowing informally often comes with steep costs. Interest rates are high, there are no clear rules, and if things go wrong, there's little protection. It can trap families in cycles of debt that are hard to also plays a role. Southern states like Kerala, Tamil Nadu and Karnataka have higher levels of formal borrowing, partly due to the popularity of gold loans and wider fintech use. But in states like Bihar, Jharkhand and West Bengal, more than half of all households still depend on informal sources. Even Punjab, which traditionally had a more stable credit profile, is now seeing a shift towards informal matters too. Daily-wage workers are among the most excluded. Over 55% of households in this group rely on informal loans, as banks tend to see them as too risky. The same is true for many self-employed people, especially those running small businesses. Banks often hesitate to lend to them. As a result, more of these households depend on non-institutional the other hand, salaried professionals and industrial workers have seen better access to formal loans, especially with the rise of digital lending platforms. These borrowers usually have more paperwork, better credit scores, and more predictable income. That makes them more and microfinance institutions are filling some of the gaps, especially in small towns and rural areas, added the report. But their growth has limits. They face higher funding costs, tighter regulations and less room to Debopam Chaudhuri notes in the report, 'India's financial inclusion story has delivered impressive gains in access, but the next chapter must focus on usage, especially timely, affordable and appropriate credit. For millions of informal workers, small entrepreneurs and rural households, NBFCs are the only bridge to formal finance. Strengthening them is essential to close the credit gap.'He adds, 'Without formal credit at the last mile, especially for self-employed and blue-collar workers, India risks widening the credit divide. Informal borrowing not only carries higher costs but lacks regulatory protection, which undermines long-term household resilience.'The Piramal report calls for more support to strengthen these lenders, suggesting measures like giving strong NBFCs more options to raise funds, improving their access to affordable capital, and simplifying the rules around loan recovery for small borrowers. These steps could help them reach more people who are currently left out of the formal system. advertisement
Time of India
22-06-2025
- Business
- Time of India
The poor's recourse isn't a bank, but moneylenders, mostly
Moneylenders, shopkeepers, and family members constitute the primary sources of emergency funds for the poor, showed a study by Piramal Enterprises , indicating several initiatives to promote financial inclusion are yet to alter the borrowing landscape for the most vulnerable. NBFCs can help bridge the gap and step up the share in formal financing for the marginalized, said Debopam Chaudhuri, chief economist, Piramal Enterprises. Of course, they need some regulatory support, such as the ability to raise fixed deposits and have a liquidity backstop window, he said. The report shows micro-business owners and economically weaker segments (EWS and LIG) remain underserved. "These segments of Bharat continue to depend heavily on informal channels, with banking and fintech innovations yet to significantly make a meaningful impact on their access to formal credit," Chaudhuri stated. The economic aftermath of the Covid-19 pandemic triggered major shifts in borrowing behaviour. Reverse migration increased informal and agricultural employment in lower-income states, further boosting dependence on informal credit. "Over 55% of daily-wage households reported active informal loans, even as formal lenders became more cautious due to rising credit risk," Chaudhuri said. The report also reveals stark state-level disparities. While Kerala, Tamil Nadu, and Karnataka show strong formal credit presence-driven by gold loans and fintech usage-Bihar, Jharkhand, and West Bengal have more than 57% of households relying on informal borrowing. Notably, Punjab has transitioned from a 'high-income, low-borrowing' profile in FY19 to 'high borrowing low income states' implying increasing reliance on informal credit due to lower penetration of financial inclusion. In 2021, borrowing from non-institutional sources was 2.63 times that of borrowing from institutional sources in India, compared to 0.6 times in Brazil and 0.27 times in the USA. "This implies that for every two people borrowing from institutional sources, five people were opting for non-institutional sources of borrowing," Chaudhuri said. More than 55% of households associated with this profession have active loans, largely from non-institutional sources, highlighting both the demand for loans and the lack of supply from institutional sources, Chaudhuri said in his report titled Prevalence Of Non-Institutional Borrowing Among Indian Households: A Pre and Post Covid-19 Analysis.
Time of India
22-06-2025
- Business
- Time of India
Reliance on informal finance persists despite multiple financial inclusion measures: Report
Non-institutional channels of borrowing such as moneylenders, shopkeepers, and family constitute a major chunk of borrowing for the poor despite several initiatives to promote financial inclusion, shows a study by Piramal Enterprises . To enhance the share of formal finance, Debopam Chaudhuri, Chief Economist, Piramal Enterprises, says that non-banking finance companies can step in to bridge this gap, provided they are given access to cheaper resources such as the ability to raise fixed deposits and a liquidity backstop window by the RBI to secure short-term loans for top-tier NBFCs. The findings of the report show micro-business owners and economically weaker segments (EWS and LIG) remain underserved in terms of access to formal credit , while banks and finance companies are targeting Tier 2 and Tier 3 towns for financial inclusion. 'These segments of Bharat continue to depend heavily on informal channels, with banking and fintech innovations yet to significantly make a meaningful impact on their access to formal credit,' Chaudhuri stated. The economic aftermath of the COVID-19 pandemic triggered major shifts in borrowing behaviour. Reverse migration increased informal and agricultural employment in lower-income states, further boosting dependence on informal credit. Live Events 'Over 55% of daily-wage households reported active informal loans, even as formal lenders became more cautious due to rising credit risk,' Chaudhuri said. The report also reveals stark state-level disparities. While Kerala, Tamil Nadu, and Karnataka show strong formal credit presence, driven by gold loans and fintech usage, states like Bihar, Jharkhand, and West Bengal have over 57% of households relying on informal borrowing. Notably, Punjab has transitioned from a 'high-income, low-borrowing' profile in FY19 to a 'high-borrowing, low-income' state, implying increasing reliance on informal credit due to lower penetration of financial inclusion. Data indicate that although there were early signs of a shift from non-institutional to institutional borrowing between FY15 and FY19, the disruptions caused by COVID-19 and the accompanying rise in unemployment reversed this trend. Many borrowers were compelled to return to informal lenders, a pattern that coincided with large-scale urban-to-rural reverse migration and a subsequent increase in agricultural employment triggered by the 2020 lockdowns. At the global level, while other economies, both developed and developing, witnessed a declining trend in the share of non-institutional credit, India observed rising incidences of non-institutional lending vis-à-vis institutional lending. In 2021, borrowing from non-institutional sources was 2.63 times that of borrowing from institutional sources in India, compared to 0.6 times in Brazil and 0.27 times in the USA. 'This implies that for every two people borrowing from institutional sources, five people were opting for non-institutional sources of borrowing,' Chaudhuri said. The data suggest rising risk aversion of institutional lenders to fund daily-wage workers with no long-term work commitments, which has prompted wage labourers to rely on non-institutional moneylenders. More than 55% of households associated with this profession have active loans, largely from non-institutional sources, highlighting both the demand for loans and the lack of supply from institutional sources, Chaudhuri said in his report titled Prevalence Of Non-Institutional Borrowing Among Indian Households: A Pre and Post COVID-19 Analysis. Self-employed entrepreneurs are increasingly relying on non-institutional sources, with the annualised growth of households borrowing from such sources rising at a much faster pace than those borrowing from institutional lenders. 'This depicts increased risk aversion among institutional players to support small businesses,' the report said. In the case of industrial workers and white-collar professionals, incidences of non-institutional borrowing are slowing down due to the advent of new-age fintech lenders and easier access to institutional credit. These cohorts appear to be the biggest beneficiaries of the democratisation of finance currently underway in India, notes the report. Over the last decade, multiple policy initiatives resulted in 77.5% bank account ownership among adults by 2021. Measures like the India Stack, policy interventions such as Jan Dhan (2014), Mudra (2015), Svanidhi (2020), and Vishwakarma (2023) Yojanas, along with the arrival of fintech players who harnessed technology to curate financial services for the previously unbanked population, have contributed to this progress. The data used for this analysis were sourced from the Centre for Monitoring Indian Economy's (CMIE's) Consumer Pyramid Household Survey (CPHS) dataset. This private agency conducts high-frequency, large-scale surveys that have become increasingly popular for assessing short-term changes in the economic conditions of Indian households. The report says NBFCs can facilitate migration from informal to formal sources of borrowing if they are supported in reducing their funding costs, which would enable passing on to end borrowers,' Chaudhuri said. Measures such as a liquidity backstop window by the RBI to secure short-term loans for top-tier NBFCs can improve their credit ratings and reduce borrowing costs. Additionally, granting deposit-taking licences to well-managed, large NBFCs, with appropriate regulatory safeguards, would allow these institutions to diversify funding sources beyond banks and raise long-term liabilities at lower costs, thereby reducing ALM risks. A dedicated refinancing window for NBFCs is urgently needed to alleviate liquidity concerns. Furthermore, simplifying the ease of doing business for these institutions by lowering the loan amount threshold for enforcing security interests under the SARFAESI Act from ₹20 lakh to ₹1 lakh would be highly beneficial. 'These reforms would equip NBFCs with greater capacity to expand their reach, serving a larger portion of India's population who still struggle to access formal financial services,' said Chaudhuri.
India Gazette
09-06-2025
- Business
- India Gazette
RBI's rate cut likely to lower bond yields as govt announces Rs 26,000 cr G-Sec buyback
By Nikhil Dedha New Delhi [India], June 9 (ANI): Bond yields in India are expected to go down following the recent frontloaded rate cut by the Reserve Bank of India (RBI), says economists ANI spoke with. The economists noted that rate cut is likely to influence the market to adjust to a revised and more accommodative interest rate outlook, pushing dated government securities (G-sec) yields down further. Debopam Chaudhuri, Chief Economist at Piramal Group told ANI 'The frontloaded rate cut is likely to drive a further easing in dated G-sec yields as markets adjust to a revised interest rate trajectory. The RBI's shift to a neutral stance could be initially interpreted as a signal of a pause in the rate-cut cycle'. He further stated that 'these are likely to be short-term adjustments, and bond yields are expected to resume their downward trend once market volatility subsides'. However, in the near term, some upward pressure on yields may emerge as investors may look to book profits after the rally in bond prices. Moreover, the RBI's shift to a neutral policy stance may be initially read by markets as a pause in the rate-cut cycle, which could also cause some temporary volatility in yields. Additionally, the US Federal Reserve is also anticipated to lower its terminal interest rate to around 4 per cent, creating more room for the RBI to continue with its rate-cutting approach. Dipanwita Mazumdar, Economist specialist at Bank of Baroda told ANI 'India's long end yields especially the 10Y part of the curve has priced in the rate cut. Thus we expect it to be largely capped as the change in stance has hinted lesser scope for future monetary policy easing. Hence we do not expect much momentum. However, the short run part of the curve will be more susceptible to the liquidity support given by RBI especially through CRR cut. Thus we expect some prevalence of a steeper yield curve for India in the near term'. In a parallel move aimed at managing its debt portfolio and supporting the bond market, the Government of India has announced a buyback of dated securities worth Rs 26,000 crore (face value). The buyback will be conducted through an auction on June 12, 2025. It will include five securities maturing in 2026: 5.63 per cent GS 2026 (maturing on April 12), 8.33 per cent GS 2026 (July 9), 6.97 per cent GS 2026 (September 6), 5.74 per cent GS 2026 (November 15), and 8.15 per cent GS 2026 (November 24). There is no notified amount for individual securities within the Rs 26,000 crore ceiling. The auction will be held on RBI's E-Kuber system between 10:30 a.m. and 11:30 a.m., and the results will be declared the same day. Settlement will take place on June 13, 2025. With the rate cut and the government's buyback initiative, economists believe bond yields will continue their downward trend in the medium term, providing further support to market liquidity and helping lower borrowing costs for the government. (ANI)
Mint
09-06-2025
- Business
- Mint
RBI's rate cut bonanza, ₹26,000 crore G-Sec buyback likely to lower bond yields
Bond yields in India are expected to go down following the recent frontloaded rate cut by the Reserve Bank of India (RBI), says economists ANI spoke with. The economists noted that a rate cut is likely to influence the market to adjust to a revised and more accommodative interest rate outlook, pushing dated government securities (G-sec) yields down further. Debopam Chaudhuri, Chief Economist at Piramal Group told ANI "The frontloaded rate cut is likely to drive a further easing in dated G-sec yields as markets adjust to a revised interest rate trajectory. The RBI's shift to a neutral stance could be initially interpreted as a signal of a pause in the rate-cut cycle". He further stated that "these are likely to be short-term adjustments, and bond yields are expected to resume their downward trend once market volatility subsides". However, in the near term, some upward pressure on yields may emerge as investors may look to book profits after the rally in bond prices. Moreover, the RBI's shift to a neutral policy stance may be initially read by markets as a pause in the rate-cut cycle, which could also cause some temporary volatility in yields. Additionally, the US Federal Reserve is also anticipated to lower its terminal interest rate to around 4 per cent, creating more room for the RBI to continue with its rate-cutting approach. Dipanwita Mazumdar, Economist specialist at Bank of Baroda told ANI "India's long end yields especially the 10Y part of the curve has priced in the rate cut. Thus we expect it to be largely capped as the change in stance has hinted lesser scope for future monetary policy easing. Hence we do not expect much momentum. However, the short run part of the curve will be more susceptible to the liquidity support given by RBI especially through CRR cut. Thus we expect some prevalence of a steeper yield curve for India in the near term". In a parallel move aimed at managing its debt portfolio and supporting the bond market, the Government of India has announced a buyback of dated securities worth ₹ 26,000 crore (face value). The buyback will be conducted through an auction on June 12, 2025. It will include five securities maturing in 2026: 5.63 per cent GS 2026 (maturing on April 12), 8.33 per cent GS 2026 (July 9), 6.97 per cent GS 2026 (September 6), 5.74 per cent GS 2026 (November 15), and 8.15 per cent GS 2026 (November 24). There is no notified amount for individual securities within the ₹ 26,000 crore ceiling. The auction will be held on RBI's E-Kuber system between 10:30 a.m. and 11:30 a.m., and the results will be declared the same day. Settlement will take place on June 13, 2025.
