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

Episode Date: August 25, 2026

India's finance minister wants public sector banks to get "cool" for Gen Z. With yoga vouchers, youth kiosks, awareness campaigns. But the numbers tell a different story. PSBs are losing young Indians as both depositors and borrowers, while, at the same time, fintech lenders capture 57% of India's small-ticket loan market. Some, even at interest rates as high as 600%. On this episode, host Rachel Varghese asks why India's public banks misdiagnosed the problem, what it's actually costing young borrowers, and whether the tools to fix it, like cheaper credit, and faster underwriting, that already exist can be pointed in this demographic's direction.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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 with a 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 of 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 into 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% 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 NBFCs,

who have ended up charging their customers upwards of 600% 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% to about 63% over the last several years. And this deterioration is only accelerating. In just FY25, PSBs got only about 50% of all new household deposits, a loss of about 7% in a single year.

which means less and less people are starting deposits with PSBs. That's probably why last week, Nirmala Sita Raman, 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 PSBs 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% of Gen Z are delaying lifetime milestones like marriage or higher education because of financial strain.

And earlier this month, my co-host, Nika, 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 dead cycles. Welcome to daybreak, a business podcast from the Ken. I'm your host, Trey Trey Tureguise and every day of the week, my co-host, Nicka Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 26th 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 Sorab Bunsell, the founder of a Sebi-registered wealth advisory called Finn at Work, said in an interview to Outlook magazine. Bunzel 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 Borrowes 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% 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% over 4%. 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 trans-union civil report from last year showed that Gen Z are coming into the formal credit system quite quickly, making up 41% 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. The reason for this change in borrowing behavior lies in an overall insecurity in the current economic conditions. Cost of living keeps going up, rents in metro cities like Bangalore and Mumbai are always a topic of concern, and AI is increasing job uncertainty. A global survey from Deloitte showed that financial anxiety is a source of daily stress for 44% of Gen Z and millennials. And for more than a quarter of Gen Z specifically, cost of living is their main concern. It even comes ahead of unemployment. So, in the midst of all this insecurity and anxiety, why risk debt?

In the US, the phenomenon has a name, doom spending. A CNBC report described it as a way for people to self-sooth while feeling pessimistic about the economy or their future. You see, saving for a house starts to make less sense. sense when property prices keep going up and the same grocery bill starts to look more expensive as time goes on even though the items themselves haven't changed. So spending or borrowing to spend becomes a way to address present needs instead of future ones, especially ones that seem out of reach anyway. For Indians who, this phenomenon is slightly more complicated because they haven't quite given up on saving yet. In fact, another report from Boston Consulting Group

showed that a majority of Indian Gen Zies saved regularly and 35% of them had started investing before the age of 25. In a way, both answer the same anxiety. Saving, especially with longer investment horizons, does offer some kind of safety net in the future. At the same time, borrowing enables the short-term aspirations of getting the latest iPhone or going on a first solo trip or making the move to a nicer apartment.

These needs are inherently more urgent. It's not always possible to wait for a bank to clear the kind of unsecured loans that a trip or a concert ticket would specifically require. Plus, as first-time borrowers, many would also not be likely to have credit scores, which is what banks largely evaluate for approvals. And that's why younger borrowers are opting for non-banking financial companies or NBFCs instead. More on this in the next segment. NBFCs don't care as much about credit scores or loan histories. And most times, the amount you borrow will land in your digital wallet in a matter of minutes.

But that speed comes at a cost. A couple weeks ago, my colleague, Midasim Khan and I had sat down to discuss the kind of predatory practices several RBI-approved NBFC stake pardon. Often, they charge interests of 365% to 500%. They do so by charging 1% interest on the daily, with tenures being anywhere from 10 days to 6 months long. 1% a day obviously adds up to 10% interest over just 10 days. And of course, for a year, that number becomes 365%. One of Muthasim's sources for the story was a man who had caught and caught up in a bad loan cycle

who had been facing an interest rate of 600% for a short tenure loan of just a year. 75,000 rupees. He was 34 years old, earning about a lack a month. And still, he could not pay off that loan. And so, the lender offered him a way out by suggesting a top-up loan through a different app. But because a borrower hadn't proved credit worthy for the new sum, he could pay off only a part of his original debt. The remaining amount began to compound at a penalty rate of 2% every day. And when that amount became due, there was another new app, another top-up. And by the end, he was repaying around 6 lakh rupees a month and owed money across 8 different apps. That's just one story. And of a millennial with a decent salary. Imagine how much

worse a cycle like that would be for someone who's quite new in their career and even less established. A 2023 BBC documentary called The Trap claimed that up to 60 Indians, most of them young, had committed suicide after being harassed by loan recovery agents. Some would turn up at the doors and workplaces of these borrowers and in one case, a young woman's contacts had received morphed pictures of her as a recovery tactic. These cases were largely linked to loan apps with Chinese routes. But Muthasim's research indicates that the recovery methods of NBFCs even today can be almost as harmful. And increasingly, more young borrowers are joining India's formal system. In fact, a 2026 report from CRIF Highmark, one of India's top credit bureaus, showed that the number of

NTC borrowers grew by almost a crore from 2022 to 2026, from 3.6 crore to 4.4 crore. And out of those accounts, 2.6 crore were supported by NBFCs and fintech platforms. What makes them so easy to use is that most of these apps use automated processes that usually ensure that the money borrowed is deposited in the borrower's account in about 5 to 10 minutes. They basically look out for red flags in the borrower's financial activity by looking at income deposits, bill payments and frequent UPI usage. If the borrower gets a regular paycheck, uses UPI and pays off bills regularly, they are likely to be approved.

A human is only involved if something looks unusual. Banks, on the other hand, still maintain a human in the loop process for financing lending, which significantly increases the timeline. Reportedly, the process for a small ticket loan from SPI takes up to 10 days, with the approval process taking about 2 to 7 days and the disbursal of the amount itself taking another 3 days. But stories like the one you just took. heard show that this is an unsustainable trend. Obviously, it's clear why Genzi prefer

NBC's. But stories like the one you just heard show that it is an unsustainable trend. Because getting caught up in these cycles mean that the generation that clearly cares just as much about saving as it does spending could essentially lose out on both. If Mutasim's source was earning a lack a month and was stuck paying off six lakhs every month, what opportunity to save or spend could he possibly have. And if this is a troubling cycle that's emerging from young people's borrowing habits, it makes sense to introduce them to safer options. Banks usually charge interest rates of about 9 to 10.5%

have longer tenures and less aggressive recovery practices. But does becoming coal just mean becoming more accessible? What does a coal bank even look like, at least based on what Sita Rahman suggests? Maybe when a young post is, walks into a bank and heads to a Yuwa kiosk, which is one of Sita Raman suggestions, by the way, the person sitting at the kiosk is also genzy. And maybe, unlike the usual formality of bank dress codes, this person is dressed more informally, in cargo pants or something, or they have the trendiest haircut. And next to them, on the desk, there's a stack of vouchers for yoga

classes or free online courses. And the decor might also be more youthful. Instead of uncomfortable metal or plastic chairs, maybe there are more colourful sofas and beanbags instead. But would all of this really even attract Genzi? Some academic studies say that it's unlikely. A friendlier surface is just that. Because under this facade of young account managers and gym vouchers, the system still doesn't really offer the speed and convenience most young people want. Even a banking official in a business standard report explained

the loss of incremental deposits is less about users losing trust in PSPs and more about customers seeking convenience, competitive rates and product variety. See, young people want to borrow. And considering the bad loan cycles like the ones we just heard, it stands to reason that they would like to borrow with better interest rates and safer recovery mechanisms. At the same time, they also like to save. A 2024 study by Aditya Bila Sunlife Insurance,

found that 76% of Genzi Indians prefer stable investments like FDs. 70% focus on five or more years of investment horizons and 73% said that debt and unexpected losses were their biggest financial concern. That doesn't sound like a generation that's doom spending just for the fun of it, does it? Which means Sita Raman's pitch has part of the right idea. Genzi is in fact a demographic that banks could benefit from tapping India. to, considering so many of their desires match so well with exactly what they offer, except for the speed and convenience.

But turns out, the structural tools to address those concerns do exist. One is the account aggregator framework. It's basically an RBI regulated platform that allows users to securely store and share their financial data between different financial institutions, but only with their explicit consent. It means that one does not have to upload documents for every application and plus, even if they don't have a history of credit, banks can use their other financial data the same way NBC's do. They look at whether incomes land regularly, if bills are paid off on time, and if someone even uses e-commerce often. Obviously, that's quite a useful and speedy tool for

banks to have. In fact, RBI was pushing the use of this framework quite a bit. at the end of 2025 because as Rajneesh Karnatak, MD and CEO of Bank of India said, only 16% of NTC loans were extended by banks and the rest were facilitated by shadow lenders. The second tool is co-lending with NBFCs. Business Standard reported that in 2020, RBI was introducing this move to improve the flow of credit to the unserved and underserved sector of the economy. It also wanted to make funds available to beneficiaries at a an affordable cost, especially considering the lower cost of funds from the banks and greater reach of the NBFCs.

The plan of the co-lending model was also to keep the NBFCs as a single point of interaction for the customers, which would help banks and NBFCs to split the risk. Neither has really worked well yet, especially for the demographic in question. For the account aggregator framework, awareness is still low. An industry estimate said that only 38% of the market. Indian account holders have AA enabled. Co-lending, on the other hand, was only recently opened up last year to cover all lending activities instead of just priority sector lending.

So, even this method is yet to pick up steam. From October 2nd this year, India's PSPs are set to launch a month-long campaign, including outreach to colleges, universities and skill institutions. Sita Rahman said in her speech that public sector banks must be the first and most trusted choice of young Indians, with the banks becoming part of customers' journey from their first account and salary to higher education, entrepreneurship and their first investment. To be a part of all of this, lending is emerging as one of the most necessary tools to engage Gen Z. And PSBs already have the pricing advantage.

But if they can actually make use of tools like account aggregator and co-lending to match the speed and convenience of NBFCs, the same borrowing decisions Gen Z are made. making to Dave for a new phone or a trip could eventually carry significantly less financial harm. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the Ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.