Take the case of a young couple in their early 30s – both IT professionals. They initially decided on a domestic vacation and then upgraded to Singapore – on a loan of ₹2 lakh. Another working couple – in their mid-30s, and their five-year-old child – took a 23-day trip across the US on a ₹6-lakh travel loan.
This shift in travel dynamics is likely to continue in 2024, say travel companies, with the estimated ₹25,000-crore loan portfolio expanding further as a swelling group of experience seekers prioritise travel over savings.
“The trend is reflected in the increased demand – by 2x – for our ‘travel now pay later’ programmes after Covid. Unlike the previous trend of ‘revenge travel,’ we now witness a genuine travel interest in exploring diverse destinations by choice,” said Nishant Pitti, CEO & Co-Founder, EaseMyTrip.
Consumer loans are helping those bitten by the travel bug.
“We are witnessing a significant shift in consumer behaviour with Indians moving rapidly from traditional savers to spenders, and with new/easy access to financial models resulting in ready availability to travel funds, our volumes on loans applied/disbursed have seen a surge of over 200% after the pandemic,” said Abraham Alapatt, President & Group Head, Marketing, Thomas Cook and SOTC Travel.What is noteworthy is that while “we had anticipated a bigger market for higher value packages for Europe and the US, we are witnessing significant demand for short hauls suggesting market expansion for loans as a category,” said Alapatt. Lower ticket size
With the market having expanded, evident in the definitive uptick in travel loans, the average loan value per person has dropped about a quarter to Rs 1.5 lakh per person. The average value has seen a reduction given the large increase of younger travellers availing of loans — for both domestic and short-haul overseas destinations. “The demand for such loans is typically from the 25-39 age group and banks prefer to lend mostly to the salaried class,” said Ambuj Chandna, President – Consumer Assets, Kotak Mahindra Bank.
Industry experts said the top source markets for holidays on EMI include Mumbai, Bengaluru, Chennai, Delhi-NCR, Pune, Hyderabad, Ahmedabad, Jaipur, Chandigarh and Lucknow. Among the banks active in this market are Axis, IndusInd and Kotak Mahindra. “Post-Covid, we are seeing a 40% plus compounded annual growth rate in travel and hotel spends,” said Chandna.
From a bank’s perspective, as of now, travel loans form a negligible portion of the personal loan portfolio to be a matter of concern. “Travel as a reason for availing personal loan is a miniscule segment, and it would account for not more than 3-4% borrowers,” said Soumitra Sen, Head – Consumer Banking and Marketing, IndusInd Bank.
Small, but growing
Extrapolating sector level data, the travel loan portfolio could be upward of Rs 25,000 crore for the banking sector given that the total personal loan portfolio is Rs 12.6 lakh crore as of October 2023.
The maximum expenditure on travel comes from credit cards. Although card companies don’t share granular details, most cards being issued, especially on credit, are predominantly travel-focused or seem to have a very strong travel customer value proposition, studies by payments service provider Visa showed.
Among the various initiatives, Visa partnered with Indusind Bank to launch ‘Virtual Commercial Credit Card’ to cater to the distinct requirements of corporates and the travel industry that make numerous bookings in multiple foreign currencies. The card enables commercial users to generate virtual cards or credentials in foreign-denominated currencies.