Fintech players could feel the heat after the Reserve Bank of India’s recent directive requiring lending institutions to increase their risk weightage 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 weightages against such loans to 125 per cent from 100 per cent currently.
While the move has been welcomed by the industry players but firms noted that the move could also lead to decline in loan 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 increased but approvals have become stricter. And now, RBI’s decision will set a chain reaction, wherein slowing down the growth in consumption of retail loans and hence impacting profitability. This 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 appraisal noted 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 and personal loan incidents 2008,” said Jaya Vaidhyanathan, CEO, BCT Digital.
Consumer-focused fintechs like Freo, Fibe, Kreditbee, Paytm, and Cred among others have a considerable share in terms of the number of loans disbursed.
Indian banks are going aggressive in their personal loan portfolio, with credit to the segment growing 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 (RBI) showed.
Fintech firms have sanctioned almost ₹30,000 crore for consumption loans — personal loans, consumer durable loans, vehicle loans between 2015 and 2022 — compared to less than ₹5,000 crore disbursed by them as business loans in the same time period, according to RBI-backed Centre for Advanced Financial Research and Learning (CAFRAL).