“Gold loans are no longer just for rainy days”; Experian India's Manish Jain on why demand is rising

Are Indians becoming comfortable with unsecured debt and personal loans? Are you seeing signs of over-leveraging?

Right now, there is no over-leveraging on lenders’ books. There are always pockets where some individuals have over leveraged, but as an industry, it is looking good. That said, we should talk about the behavioural change in today’s consumer versus, say, 4-5 years ago. Younger consumers are more comfortable taking short-term, unsecured loans than, say, a secured home loan. They do not like longer commitments and don’t want to take on obligations over a long period of time. They are more comfortable with credit obligations for a couple of months or a couple of years.

Second, I think consumers have come of age. Credit is no longer a curse word or viewed as socially unacceptable. It is viewed more as a way of life. They are comfortable with credit, especially in consumer durables. They understand that taking credit and paying it back on time helps them get bigger credit when they need it. They know the importance of building credit history.

Is there concern that the younger generation is using credit to finance its lifestyle? Is that a problem?

It was a problem earlier, but credit institutions and the regulator have cleaned up a lot. Enough policies are now in place, which means loan stacking—a bigger problem the industry faced a couple of years ago—and over-leveraging have declined significantly. It will never reach zero, but there is no alarm or concern that the younger generation is taking more credit than they should. A percentage of the population will always over-leverage and many have fallen into the trap because credit is so easy to access. That is the primary reason.


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The regulator has introduced many controls to manage over-leveraging. The most significant step is increasing the frequency of credit reporting by the bureaus from monthly to fortnightly to weekly, which clearly signals to lenders not to take risk. So, the supply side is managed well now, and on the consumer side, some individuals will always get carried away, be it secured or unsecured credit.

Do lenders consider credit scores before giving loans to the same consumer?

A lot of checks have been put in place in the past two years. The uncontrolled distribution of money by smaller players, who were charging exorbitantly high interest rates, was true about two years ago. Now, there is absolute control over what you can charge. This control is driving lender behaviour, as they cannot offer credit to high-risk consumers because the business becomes unviable. Besides, the unlimited supply of venture capital for fintechs no longer exists for them to keep doing it. So, the race to acquire as many consumers as they could by burning money has ended.

The second control is guidelines on co-lending and digital lending, which clearly specify what you can and cannot do. The roles of a fintech, a regulated fintech, an NBFC and a bank have become absolutely clear in terms of who takes the risk on the books. More and more licenced entities are taking risk on the books, which by definition means that uncontrolled availability of credit is going to vanish, and has vanished to a great extent, because credit is no longer available at 30-40%, which was causing the problem. The demand was always there.

That’s why the lenders and fintechs have shifted to gold loans, which have shown a massive growth of 80-85% on the books. They are saying that if we can’t offer uncontrolled, unsecured loans, let us move toward a secured product that regulated entities and the regulator will be comfortable with. One must also understand that a gold loan is no longer a rainy-day loan. It has become more of a financial instrument because we are seeing gold loans taken in deep geographies by middle- and lower-middle-class people, and even well-off people, as they view it as an asset and a financial instrument in their overall financial plan. You would think a gold loan is usually taken by the middle class and middle-aged or older people. That is not really true. We are seeing younger people take gold loans because they view it as a financial instrument, not an asset to pledge.

So gold is just another loan option?

Yes, correct. People have become more aware and are making a conscious choice to do so. It’s easier than pledging your house, which is a long, tricky process. A gold loan is easy to take. What we need to watch out for is revolving loans against gold, where someone pledges gold and keeps taking top-up loans against it. So you’re not really paying off your loan, just rolling it. Those are the consumers lenders need to watch out for, because even though lenders might be comfortable doing it forever, controls are being put in place to flag such consumers.

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Are we moving to real-time credit reports in the near future?

Real-time reports may be far away, but daily reports could become a reality in the not too-distant future. Real-time reports can be an overkill because the cost-benefit ratio may not work for lenders and credit bureaus.

What are the most common mistakes consumers make with credit?

One mistake is consumers refusing to educate themselves on how much they can pay with multiple obligations. It’s not that they are not well-to-do or don’t have jobs, but many take credit that they miscalculate. We have seen this more in tier 1 and tier 2 cities. For instance, if I earn Rs.2 lakh a month, I do a back-of-the-envelope calculation that I can take a home loan with a Rs.1.25 lakh equated monthly instalment (EMI). The remaining Rs.75,000 will cover rent, utilities, and other lifestyle expenses. Many miscalculate their remaining obligations and emergency needs.

What are the misconceptions about credit scores?

The biggest misconception is that lenders consider only the credit score for underwriting. The score is just one indicator or parameter. No lender uses just scores for underwriting. This was also driven by the ‘buy now, pay later’ (BNPL) mad rush a few years ago, when fintechs used only the score to extend credit. It’s no longer happening.

Secondly, many people don’t understand that checking your own credit report or inquiring about credit will not impact your score. Awareness is still low that a credit score is just an indicator of your overall financial health. It doesn’t necessarily mean you will get any amount of credit you want. An 800 score does not guarantee a Rs.1 crore or even a Rs.1 lakh loan. So it’s just one of the many parameters, and banks also use alternative data to underwrite.

What is the future relevance of the 3-digit credit score since banks are using alternative data and artificial intelligence (AI)?

You always need a golden source to validate any other data you use. Suppose banks take utility payments as data to underwrite. Where do they get global or country-level information to check whether the credit obligation is being performed well? So bureaus will never lose relevance because they are the single source of truth for credit obligations. No regulator in the world has allowed or will allow pure AI-driven decision-making. So no automated underwriting will ever happen. AI will become the best enabler to test the efficacy of alternative data at scale.

Secondly, AI will help find correlations with multiple data sets at scale. Earlier, the scorecard building activity was done with a sample size. Now AI can help do it with the entire bureau data. Earlier, scorecards were built based on historical portfolios and you used bureau data for that portfolio. So, by definition, bias was built in. Now, they can build it on the entire bureau, which is possible only with AI.