Stuck in Neutral: How Inertia Is Stalling India’s Lending and Insurance Revolution

For financial leaders, product managers, and digital transformation teams trying to understand why India's lending and insurance growth is stuck: not because of competition, but because people simply don't move.

1. Summary

• India's lending and insurance slowdown isn't about competition. It's about inertia.
• Fear, confusion, low trust, and information gaps stop users before they even start.
• Merchant-led education has helped a little, but not enough because finance still feels "need-based," not exciting.
• AI-driven personalization, support in local languages, and better timing can finally break the cycle of inaction.

2. The Real Problem: An Overwhelming Resource Gap

India's lending and insurance system isn't just held back by apathy; it's held back because people don't have the knowledge, support, or trustworthy guidance needed to make good decisions.

More than 70% of Indian adults lack basic financial literacy (NCFE, 2025). Even digitally savvy users often can't find clear, timely, personalized help.

People want to manage their money better. They just don't know how, and the information they need is rarely available in the right way or at the right time.

• 69% of Indians struggle with future financial planning
• Only 27% meet basic financial literacy standards

(Financial Express/HSBC 2024; NCFE 2025)

So people freeze, not because they don't care, but because the system feels too complicated, intimidating, or unreliable.

3. Why Do Indian Consumers Stick to the Status Quo?

3.1. Psychological Barriers and Habits

3.1.1. Fear of Making the Wrong Choice

Financial decisions like taking a loan or buying insurance are high-stakes. The fear of locking into a poor product, losing money, or facing long-term consequences leads to decision paralysis. Consider this: a consumer who buys the wrong insurance policy may be locked in for years or lose money if they surrender early. This real risk fuels avoidance.

According to a 2023 RBI survey, 45% of respondents cited fear of making the wrong financial decision as a major barrier to adopting new financial products.

Behavioral economics shows that people overvalue present comfort and undervalue future benefits: what researchers call "present bias." For lending and insurance, this means the discomfort of comparison today outweighs the security of protection tomorrow.

3.1.2. Procrastination and Apathy

Comparing products feels like homework. So people simply avoid it. People keep saying, "I'll do it next month" and then simply… don't.

The perceived effort required: researching options, filling forms, gathering documents and making a decision feels overwhelming compared to the immediate payoff (which exists only in the future).

A 2022 National Council of Applied Economic Research (NCAER) study found that 38% of potential borrowers postponed loan applications due to perceived complexity and effort.

3.2. Trust Deficit: When Institutions Fail Users

3.2.1. Lack of Product Understanding

Terms like "term plan," "ULIP," or "reducing balance interest rate" feel alien to many users.

If people don't understand products, they don't buy them.

The Financial Literacy Survey 2021 by the National Centre for Financial Education (NCFE) reported that only 27% of adults in India have a basic understanding of financial products.

3.2.2. Skepticism Toward Institutions

The relationship manager (RM) is supposed to be the bridge between institutional finance and the customer. Instead, misaligned incentives have turned RMs into obstacles to financial inclusion.

Over 57% of bank RMs have admitted to mis-selling financial products due to extreme sales pressure. This isn't a fringe problem, it's systemic. Customers are often forced to bundle products they don't need. A customer applying for a loan is told they cannot proceed without purchasing insurance. A pensioner seeking a safe fixed deposit is steered toward a complex market-linked ULIP (Unit Linked Insurance Plan) because it carries higher incentives.

The damage is generational.

When a customer discovers they've been mis-sold, when they realize the "simple deposit" they bought is actually a volatile investment: trust evaporates. That customer tells their family. Their family tells their community. And the entire institution becomes synonymous with exploitation.

According to the 2023 Edelman Trust Barometer, only 34% of Indians trust financial institutions, down from 42% in 2020. This isn't just a PR problem. It's a barrier to financial inclusion.

3.3. Barriers to Understanding: Complexity, Language, and Mismatch

3.3.1. Processes That Intimidate, Not Empower

Lengthy forms, extensive documentation, and unclear eligibility criteria create friction at every step. A farmer applying for a crop loan must gather bank statements, land records, and tax returns. For someone operating in the informal economy, this feels impossible.

A 2022 Indian Institute of Management Bangalore (IIMB) study found that 52% of loan applicants cited paperwork and process complexity as a key deterrent.

3.3.2. Language and Accessibility Barriers: Lack of Personalization

Financial platforms and documents are often in English or formal Hindi. Yet 44% of Indians are not fluent in English, and 60% prefer regional languages for communication (2021 Census).

• A Tamil farmer cannot navigate a lending platform built in English.
• An older woman in Gujarati-speaking Gujarat cannot understand a policy document in formal Hindi.

These aren't edge cases, they represent hundreds of millions of people.

4. What Have Merchants Done to Solve This?

Recognizing these barriers, India's financial sector and regulators have launched ambitious initiatives to increase user knowledge and engagement. The scale of these efforts is impressive. But here's the critical question: Have they moved the needle?

4.1. National and Regulatory Financial Literacy Campaigns

The Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDAI), Securities and Exchange Board of India (SEBI), and Pension Fund Regulatory and Development Authority (PFRDA) coordinate mass awareness programs under the National Strategy for Financial Education. These campaigns use simple, relatable messages like "Why Insure?" and "Why Save with Banks?" distributed across TV, radio, digital media, and print in multiple languages.

4.2. Product Education at Point of Sale

Merchants are increasingly responsible for educating buyers about the appropriateness, performance, and costs of products at the point of sale. This includes explaining product features, scenarios, and charges using simple examples, often mandated by regulators.

4.3. Digital Resources and Multilingual Support

Many banks and insurers have developed dedicated educational websites, mobile apps, and helplines in multiple Indian languages. For instance:

• SEBI's investor education website and helpline are available in 14 languages.
• IRDAI disseminates insurance awareness through TV, radio, and print in English, Hindi, and 11 regional languages.

4.4. Fair Lending and Transparency Codes

Major banks like SBI have adopted Fair Lending Practices Codes, ensuring that customers receive clear, comprehensive information about loan products, processes, interest rates, and charges through websites, branches, and other media. Customers are given access to product documents, explanations of terms and conditions, and regular updates on changes, all aimed at improving transparency and user understanding.

5. Why Haven't These Solutions Worked?

Despite these substantial investments, the needle has barely moved. Why? The answer lies in a fundamental mismatch between what merchants are offering and what users actually need.

5.1. Content That Misses Reality

Most financial literacy campaigns are designed for educated, urban audiences. A workshop in Hindi doesn't help a Tamil speaker. A video explaining insurance terminology assumes baseline financial knowledge. Content that works for Delhi doesn't resonate in rural Gujarat or urban Bengaluru's migrant communities. Result: campaigns broadcast messages into a void.

Additionally, campaigns use jargon and formal language. "Financial instruments," "asset allocation," "insurance premium": these terms mean nothing to someone earning below the poverty line. The solution often reinforces the problem: making finance feel more, not less, intimidating.

5.2. Education Without Timing

A farmer attends a government-sponsored workshop on crop loans in January. She learns about eligibility, interest rates, and documentation. Then drought hits in June. But the workshop happened six months ago, and she can't remember the details. She doesn't have the merchant's contact or the confidence to ask questions. She defaults to informality: borrowing from a moneylender at 24% interest.

The timing mismatch is critical.

5.3. Trust Deficit That No Campaign Can Fix

A customer who's been mis-sold won't trust an educational video from the same bank. A family that lost money on an insurance claim won't engage with awareness campaigns. Trust isn't built through campaigns; it's destroyed through experience. And for millions of Indians, that experience has been negative.

6. How AI Can Be a Game Changer

The limitations of traditional approaches point toward a new solution: AI-driven, personalized engagement that bridges the awareness-action gap.

6.1. Understanding the Moment of Need

Traditional merchants are silent when users are silent. An insurance company releases a campaign in January. If you're not paying attention in January, you miss it. You won't see the message again until next January, when your need has potentially evolved.

AI works differently. AI monitors user behavior continuously. When a user Googles "home loan eligibility," the AI recognizes the signal. When a customer visits your website at 10 PM researching "health insurance," the AI detects urgency. When a user opens an email about "personal loans for medical emergencies," the AI notes the context.

This real-time detection allows merchants to engage users at their moment of need, with relevant information, delivered immediately.

6.2. Personalization That Reflects Reality

Using behavioral data, transaction history, and life-stage indicators, AI can identify which product best suits each user. A young professional building a home might need a home loan with flexible repayment. A parent might need term insurance. A retiree might need pension products.

Instead of showing everyone the same product, AI recommends the right product to the right person at the right time. This isn't manipulation; it's relevance.

6.3. Overcoming Language and Accessibility Barriers

A significant portion of India's population doesn't use digital interfaces comfortably. Users prefer voice. They speak regional languages. They want human-like interaction, not form-filling.

AI agents can deliver this. A user can call a number and speak in Tamil or Telugu. The AI understands, answers questions, and guides them toward the right product, all in their native language. An elderly user uncomfortable with apps can use voice commands. A visually impaired user can receive audio guidance.

By removing friction from the interaction, AI makes it easier for users to engage.

6.4. Building Trust Through Transparency and Consistency

Traditional RMs are incentivized to sell. They have quotas, bonuses, and job security tied to sales numbers. This creates mis-selling and erodes trust.

AI agents have no such incentives. They're designed to help users make informed decisions, not to push products. When an AI explains that a simpler product might be more suitable, it has no motive to mislead. Users sense this. Transparency builds trust.

Additionally, AI maintains perfect consistency. Every user gets accurate information, unbiased recommendations, and honest explanations regardless of when they engage or how many times they call. This reliability builds confidence.

6.5. Collecting Intelligence While Educating

When an AI agent answers a user's question about loan eligibility, it's doing more than providing information, it is also engaging the users on what other details might be important. At the same time it can collect user information in a conversational manner, much more effective than a bland form that users have to fill in today.

6.6. Purchase Intent Scoring: Focus Where It Matters

Merchants' sales teams waste enormous effort on low-intent leads. A user who visited your website once, six months ago, isn't ready to buy today. Yet they get the same follow-up calls as someone actively comparing loan options.

AI can score purchase intent based on behavior. A user researching for the first time gets soft education and awareness. A user comparing specific terms gets detailed comparison. A user in the final stages of consideration gets closing support. Sales effort is allocated where it's most likely to convert.

7. Real Example: How AI Changes the Journey

Consider Rajesh, a 35-year-old shopkeeper in Bangalore needing ₹5 lakh for shop expansion.

Without AI: Rajesh visits a bank branch. The RM spends 20 minutes on formalities. Rajesh is asked about his income, assets, and business details. He's uncertain about his answers and feels judged. The RM seems more interested in pushing insurance than understanding his need. Rajesh feels rushed and leaves. He never returns.

With AI: Rajesh calls a number and speaks in Kannada. The AI agent understands. It asks clarifying questions, not interrogatively, but conversationally. Rajesh feels heard. The AI explains loan options in his language, in simple terms. It doesn't push anything. When Rajesh asks about terms and eligibility, the AI provides honest answers. The AI remembers his details, so if Rajesh calls again, he doesn't repeat himself. Over the next three calls, Rajesh builds confidence. He applies for the loan, gets approved quickly, and feels respected throughout.

The difference isn't the product. It's the experience. AI humanizes the process while removing human bias.

8. Potential Concerns

8.1. "Isn't AI Just Another Form of Automation That Removes the Human Touch?"

Not when designed correctly. AI agents are designed to provide the human touch at scale: conversational, empathetic, understanding. They remember your preferences, your history, your concerns. A human RM, pressed for time and burdened with quotas, cannot provide this consistency. AI can.

For complex decisions or escalations, AI seamlessly hands off to humans. The goal isn't to eliminate humans; it's to eliminate friction and bias.

8.2. "What About Users Who Don't Trust AI?"

This is valid. Many users distrust anything digital, especially something invisible like AI. The solution is transparency. Users should know they're talking to an AI. The AI should be honest about its capabilities and limitations. Over time, through consistent, reliable interactions, trust builds.

Additionally, users can always request a human agent. AI isn't a replacement; it's an option that coexists with traditional channels.

8.3. "What About Data Privacy and Misuse?"

Legitimate concern. AI systems require data. Merchants must comply with regulatory requirements around data storage, encryption, and access. The IRDAI, RBI, and other regulators are developing frameworks for responsible AI use in finance. Adherence to these frameworks is non-negotiable.

9. The Path Forward: From Inertia to Action

The status quo is the most powerful competitor in India's lending and insurance sectors. It's rooted in psychology, culture, economics, and past experience. Traditional awareness campaigns have failed to dislodge it because they treat inertia as an information problem. It's not. It's a friction, trust, and timing problem.

AI, when designed with user empathy and regulatory compliance, can address all three. By meeting users at their moment of need, in their language, with relevant products, and through transparent, consistent engagement, AI can finally break the cycle of inaction.

The merchants who recognize this shift, from awareness-based marketing to intent-based engagement will lead the next phase of financial inclusion in India. For the hundreds of millions currently stuck in neutral, the implications are profound.

"Only 24% of Indians are financially literate, and 68% consider insurance only after a major life event. Yet this is not a literacy problem, it's an engagement problem. AI can solve it."