India Inc & MSMEs Worried About Declining Consumer Durable Loans

Demand for consumer loans is going down. In April 2025, the year-on-year growth rate in bank consumer durable loans has declined by a significant 1.3 per cent. The total outstanding loan stands at Rs 23,279 crore in April 2025 — lower than Rs 23,577 crore in April 2024.

In January this calendar year, total outstanding consumer durable loans were Rs 23,508 crore, down from Rs 24,012 crore in December 2024. Although February saw a slight uptick, at Rs 24,506 crore, it went down again in March, to Rs 23,402 crore, before going down again in April.

Immediate Worries For Industry

The sales of refrigerators suffered a visible decline in some regions of the country during March and April 2025, particularly in South and East India, with some estimates suggesting a 10 per cent year-on-year drop.

The decline continued in the next month as well. Between March and May 2025 — which is the peak season for air conditioners, refrigerators, fans, and coolers — sales of cooling appliances fell by around 20 per cent, compared to last year.

The washing machines market is also experiencing fluctuations. Japanese electronics major Panasonic discontinued washing machine and refrigerator production in India last month. This is a clear indication from the industry of a slowdown in the segment.

Smartphone sales did not take off well in early 2025. A new report by IDC (International Data Corporation) revealed that 32 million smartphones were shipped in the January-March quarter — a 5.5 per cent drop compared to the previous year. This is the second consecutive quarter when smartphone sales have declined.

Fallout On The MSMEs

While consumer durable loans do not directly impact the MSMEs, they are major suppliers of raw materials for consumer goods production.

"MSMEs supply most of the raw materials to larger companies that produce consumer white goods, starting from plastics, nuts and bolts, and several other smaller items. So, a fall in demand will impact the MSMEs, though we are hoping it is temporary and in the coming months things will get better," said Anil Bhardwaj, Secretary-General of FISME (Federation of Indian Micro and Small & Medium Enterprises).

The distinct downward trend in demand for consumer durables loans has started to impact industries, including the MSMEs.

In April 2025, the year-on-year growth rate of bank consumer durable loans was a negative 1.3 per cent. The amount of such loans stands at Rs 23,279 crore in April 2025, down from Rs 23,577 crore in April 2024.

In April 2023, the amount of consumer durable loans was Rs 21,237 crore. Therefore, April 2024 saw a more than 11 per cent year-on-year growth in this retail loan segment.

This fall from a healthy double-digit growth rate last year to negative growth this year may have broader implications for the economy. Most visibly, the sales of fridges, ACs, and smartphones — usually a ready reckoner for the health of consumer demand — are down across the first four months of 2025.

The immediate effect is a fall in the sales of consumer durables brands. Slower sales growth of the India Inc. will affect the profit margins, at least in the short term.

In another fallout, MSMEs, which supply components, packaging, or services to larger consumer durable firms, may experience a drop in order volumes as end-consumer demand declines.

MSMEs frequently complain about accessing formal credit due to collateral requirements, documentation, and risk aversion of the banks. If the slowdown in consumer durable loans persists, then it may further reduce the lenders' willingness to provide credit to the MSMEs.

If that results in MSMEs taking more credit from the informal lenders at a higher cost, that will put pressure on their balance sheets. Reduced sales and delayed payments from larger consumer durable companies can hamper the cash flows of the MSMEs, creating working capital stress.

Consumption-Driven Growth May Be At Risk

In recent times, India's economic growth has been substantially driven by consumption. Rural consumption recovery has played a significant role in this. The share of private (household) consumption in India's GDP was 61.4 per cent in 2024-25. Finance Ministry officials had earlier conveyed that the 2024-25 share is a two-decade high for private consumption's contribution to the GDP. 

A recent HDFC report stated, “Population growth has always been an important driver of consumption… The large working population, coupled with rapid urbanisation, increasing income trends, and the aspirational outlook of young Indians, will continue to drive strong growth in consumption themes in the country.”

While presenting the budget for 2025-26, in the context of restructuring income tax slabs, the Finance Minister, in her speech, said, “The new structure will substantially reduce the taxes of the middle class, and leave more money in their hands, boosting household consumption, savings, and investment.”

So, it will not be an overstatement to say that Indian policymakers are relying on consumption growth in the domestic economy for future growth.

However, any contraction in the consumer durable loans segment implies lower demand for products like refrigerators, washing machines, air conditioners, computers, and smartphones.

Early Signal Of Weak Consumption, Or A Passing Phase?

The fall in consumer loans growth may be an early sign of weakening consumer confidence in the economy. There are existing concerns around income stability, job prospects, and the growing cost of living in the economy.

However, the industry is also hoping that this is a passing phase and will be over soon. 

The slowdown in consumer durable loans is also in sync with the broader trend of slowing retail credit growth. Higher borrowing costs, tighter regulatory norms, and a cautious approach of banks to unsecured loans — all these factors contributed to that trend.

To revive GDP expansion by boosting consumption, policymakers and industry stakeholders have to monitor these trends and take appropriate measures.