Banks are being asked to become “cool” for Gen Z. Their problem isn't branding

**Rachel Varghese** (0:01)
When I was making my first move from a PG to an apartment in Bangalore, I seriously considered getting a credit card. I was going to be paying quite a lot of money right out of pocket. My final rent to the PG, my first month's rent at my new place, and the dreaded security deposit.
After all these were paid off, I realized I had a whole month to go and not a lot of money to spend for daily expenses. Plus, I also had to furnish my new room.
That's when the thought of getting a credit card seemed really attractive. I could get one, use it for my expenses this month, pay off the bill when my salary arrived, and never use it again. But once I had spoken to a few friends and colleagues and heard some horror stories about credit card debt, I decided there was no way in which I could afford that. So I turned to my family instead.
Now, it didn't feel great to borrow from my parents as a grown up who was earning, but it was also the wiser choice to make at the time. And I'm still grateful for their support because I didn't have to risk going into debt. But there are many young people fresh in their careers moving to new cities who need to make similar decisions. And not everyone has a family that can support them. So for them, debt is the quickest and only choice.
And turns out, more and more of those debts are now being taken on by fintech platforms, not banks. RBI's latest report on financial stability showed that nearly 57 percent of India's small ticket, which is under 50,000 rupees, personal loan market is held by fintech lenders. And doubling down on this increasing market share are predatory NPFCs, who have ended up charging their customers upwards of 600 percent interest. We'll be getting to that story soon. But before that, here are some more numbers you should know. Because at the same time, public sector banks or PSPs are seeing their share of household deposits fall, from more than 70 percent to about 63 percent over the last several years. And this deterioration is only accelerating. In just FY 25, PSPs got only about 50 percent of all new household deposits, a loss of about 7 percent in a single year. Which means less and less people are starting deposits with PSPs. That's probably why last week, Nirmala Sitharaman, India's finance minister, asked public sector banks to get cool and see how they could become more attractive to young people. Her suggestions include things like yoga vouchers, credit scheme awareness campaigns, and youth-centric in-bank experiences. But the thing is, Gen Z is not avoiding PSPs because they are uncool. It's because these banks don't provide a service that is increasingly becoming a necessity for the generation in the way that they need. Global studies show that 55 percent of Gen Z are delaying lifetime milestones like marriage or higher education because of financial strain. And earlier this month, my co-host Snigdha had spoken about the effect rising retirement costs are having on young professionals. And yet, Indian Gen Z are borrowing credit for consumption like never before, and risking getting caught in vicious debt cycles.
Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese, and every day of the week, my co-host Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 26th of August.
The pattern we see is no longer about need, it's about identity. This generation is not borrowing because they can't afford things. They're borrowing because they don't want to feel left behind.
That's what Saurabh Bansal, the founder of a SEBI-registered wealth advisory called Fin at Work, said in an interview to Outlook magazine. Bansal and other experts believe that social media, influencer culture, and an overflow of consumption choices is now making credit a lifestyle funding mechanism. It's no longer something that people lean on only for emergencies or major life commitments. And the data is showing that shifting trend as well, especially in this recent study called How India Borrows, from a consumer finance firm called Home Credit. It showed that personal loans taken to specifically enable premium consumer electronics and high-tech gadget purchases grew by 36 percent in just four years since 2020
Another study showed that nearly a quarter of personal loan borrowers used it to fund holidays. Meanwhile, the loans taken for medical emergencies decreased by 4 percent over four years. Basically, this was not a priority for modern borrowers. And a large number of these borrowers are Gen Z. And many of them are borrowing for the first time. A TransUnion civil report from last year showed that Gen Z are coming into the formal credit system quite quickly, making up 41 percent of all new-to-credit or NTC borrowers in India. And even in that segment, over a quarter of them chose consumption-led products like credit cards as their entry points.