We are aware that Fintech is a catch-all term referring to software, mobile applications, and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike. The usage goes with how people require their business to be transacted and these account from digital money to double-entry book-keeping. All financial institutions including banks have largely been using the Fintech technology and thus utilize the services of various companies involved in this activity and thus, cater to the customers’ requirements on their financial requirements. RBI has now proposed to tighten the norms for unsecured loans which is likely to affect the Fintech Companies.
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Fintech players could feel the heat after the Reserve Bank of India’s recent directive requiring lending institutions to increase their risk weight- age or the amount of capital to be set aside against unsecured loans disbursed by them, according to several industry experts.
The fintech platforms, which generate leads and provide unsecured personal loans, consumer durable loans, credit cards and gold loans, will be required to increase their risk weight-ages against such loans to 125 per cent from 100 per cent currently.
LOAN GROWTH
While the move has been welcomed by the industry players, firms noted that the move could also lead to decline in loan g an growth.
“RBI’s decision to tighten norms for consumer lending in personal loans is a welcome move to reduce risk. Our partners have already started putting stricter underwriting criteria in the last 30 days to ensure quality.
“The move taken by RBI will also see a decline in loan growth since the step has been taken to reduce excesses in the NBFC space,” said Manish Shara, Co-founder & CEO, Zet.
“We have witnessed that over the past few months ticket size of loans has in- creased but approvals have become stricter. And now, RBI’s decision will set a chain wherein slowing reaction, down the growth in consumption of retail loans and hence impacting profitability. will take a toll on NBFC’s funding cost but in the longer run this will be beneficial for the overall health of the industry,” he added. The new guidelines would curb lenders who may have followed lenient practices in loan арpraisal, said industry players. “The RBI’s decision to raise risk weights for personal loans is a positive development, timely following the central bank’s caution about the aggressive lending in the unsecured consumer loans space.
“Although the overall impact of bad loans in this segment might not be significant in monetary terms, the sheer number of citizens who are attracted into easy credit for non-productive purposes like gadgets is huge. This measure will curb lenders who may have followed lenient practices in loan appraisal, a trend that historically led to adverse outcomes, as evidenced by the credit card I and personal an incidents 2008,” said Jaya Vaidhyanathan, CEO, BCT Digital.
Consumer-focused Fintechs such as Freo, Fibe, Kreditbee, Paytm and Cred have a considerable share in terms of the number of loans disbursed.
PERSONAL LOANS
Indian banks are going aggressive in their personal loan portfolio, with credit to the segment growing by by 30.8 per cent, compared to 19.4 per cent on a year-on-year basis, the latest sectoral credit growth data with the Reserve Bank of India showed.
Fintech firms have sanctioned I almost €30,000 crore for consumption loans-personal loans, consumer dur- able loans, vehicle loans between 2015 and 2023 and 2022- compared to less than 5,000 crore disbursed by them as business loans in the same period, according to RBI- backed Centre for Advanced Financial Research and Learning (CAFRAL).
GROWING TREND
• Banks are going aggressive in their personal loan portfolio, with credit to the segment growing by 30.8%, compared to 19.4% on a y-o-y basis
• Fintech firms have sanctioned ₹30,000 crore for consumption loans – personal loans, consumer durable loans, vehicle loans – compared to less than Rs. 5,000 crore in the same period.
**Business Lines dt 21st Nov 2023.
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