Pandemic has given golden opportunity for fintech industry to re-invent itself: Clix Capital

Clix Capital Services Pvt Ltd has a rich pedigree. Formerly known as GE Money Financial Services Pvt Ltd, its parent, the GE group, sold the business to former top executives Pramod Bhasin and Anil Chawla in 2016. Since then, the company has expanded its reach and now its loan book mainly comprises corporate lending, healthcare equipment financing and auto lease loans, and has now expanded to include, SME financing and consumer finance. In an interview with BusinessLine , Clix Capital CEO Bhavesh Gupta talks about the future of the lending industry and the challenges ahead. Edited excerpts:

The lending business is very tightly coupled with economic activities in our country. Covid-19 and the subsequent lockdown have disrupted the lending industry in India at multiple levels: lack of mobility and economic activity have stalled all-new, incremental business. Demand is facing a significant slowdown as customers are trying to wrap their minds around the situation and are giving due priority to healthcare and safety over everything else. The recent policy measures announced by the RBI have driven not just the lending industry but also the borrowers into a recalibration mode. To the extent that recalibration has become an agile exercise as opposed to a one-time exercise.

The regulatory measures announced by the RBI have ensured that there is significant liquidity in the system today. The key challenge, however, that the overall industry faces, is the significant degree of risk-aversion on the part of banks. Banks have parked large amounts of money in the reverse repo window of the RBI. It is for the same reason that though the policy rates have been reduced, the rate transmission is not happening. At some point in time, however, the measures taken by the regulator will bear fruit. We have already begun to see the needle move in some regard. Liquidity is finding its way, though in small measures, to lending institutions and NBFCs which are well-capitalised, have a diversified pool of assets and are backed by strong management and robust collection processes. One believes that with the passage of time and with a deeper understanding of how Covid-19 is impacting the portfolios and the economy, the liquidity transmission will only become better. Similarly, NBFCs that are better positioned will succeed in getting much better rate transmission as compared to smaller NBFCs facing higher perceived risk. Having said that, it is important to understand that NBFCs play a key role in the revival of the economy, especially the MSME sector. More efforts have to be made to ensure that liquidity is transmitted with correct pricing to all kinds of NBFCs so that the larger ecosystem can be benefited.

NBFCs, banks, HFCs and MFIs constitute the bouquet of entities delivering financial services in the country, and all play very different roles because each reaches out to a very different set of customers. It is imperative for the entire sector to maintain a coherent approach in doing what needs to be done. The kind of resilience that the sector has consistently shown since the IL&FS crisis, in terms of managing liquidity, credit quality and overall business models is indeed noteworthy. That said, the Covid-19 crisis is truly unique and never-before-heard-of, and will, therefore, push lending institutions to rethink their core business models. Those NBFCs which are able to pivot fast will see very profitable growth at significant scale and those which fail to do so will become redundant in no time.

Demand is driven differently for SMEs and retail consumers. Demand revival is going to be very sectoral in nature. Demand from discretionary spend related to MSMEs and companies will pick up very slowly whereas that from non-discretionary spend related MSMEs might pick up relatively faster. All of this will also depend on factors like when the lockdown gets lifted, availability of credit to MSMEs, etc. I believe, by the end of Q2 or early Q3, demand from SMEs should bounce back to a fair bit of normalcy because by then people would have learnt to navigate life around Covid-19. The demand scenario for retail consumers is a sentiment issue. Currently, demand has hit an all-time low because people are gripped by fear and are struggling to grapple with the reality of the crisis. It is fair to say that retail consumer demand is linked with the optimism of the future, and will therefore, take some time to revive. We might see some positive growth in consumer demand during the festival season.

Lenders will be more inclined towards products that enjoy higher customer equity in the form of collaterals, mortgage. etc ― eg. home loans and secured SME loans. Further, lenders might not have confidence from a long-term perspective in the consistency of consumers’ cash flows. This might result in small-ticket loans and small-term loans being created as a new product category. These loans will largely focus on providing immediate financial assistance to customers. On the consumer side, the discretionary or impulse spend-based products like consumer durable, apparel loans will take a hit. The personal loans segment will see robust demand. People are now anxious about travelling in public transport, and hence, the need for personal vehicle financing may increase. On the MSME side, while businesses related to travel, hospitality, etc will see a downside impact, others like FMCG, and Pharma will do well. MSMEs will need significant working capital to kickstart the engine again.

Customers (SME, retail consumers, etc) will want lending to be delivered digitally and completely contactless. We must be conscious that a habit that has been inherited over thousands of years will not undergo complete change overnight. That said, we have leapfrogged digitally by a few years in a matter of just two months. We will see further acceleration in contactless delivery of financial products and lending solutions. Setting up digital collection processes will also be a key focus area for lenders. Even customers who have not been very comfortable in the past with the idea of adopting digital tools are beginning to recognise the benefit of going digital in the new era of physical distancing. The recent announcements from the regulator allowing e-KYC which had been previously disallowed, NPCI allowing NACH, etc will further assist in making digital platforms a more convenient means of doing business. Having said that, there will still be certain products which will need personal engagement with customers, but that is being tackled by innovative products like video engagement tools that are mitigating the need for physical meetings. At Clix, we recently launched Maya, our AI-enabled virtual assistant which allows everything from EMI calculator to loan application and customer support at the click of a button. When the RBI announced EMI moratorium midway through the lockdown, our employees were able to launch the Clix moratorium journey and tools in record time.

This is a time for the industry to study and understand how consumer behaviour is changing, how customers are choosing between spending and saving, how their income levels are getting impacted, what kind of things are customers more likely to spend their money on, etc. The findings of this extensive research will form the bedrock of a new product development strategy. My sense is that we will see a growing need for expanding short-term credit that will include digitally-originated, digitally-underwritten, digitally-disbursed and digitally-collected loans. Organisations will have to redefine the way they have been doing business in a number of ways. They will have to give much more flexibility to consumers in view of erratic and unpredictable cash flows, especially for the SMEs. Instead of having rigid loan terms, lenders might switch to a ‘pay-as-you-can’ model. Organisations will also witness a culture level change as they will realise the importance of being more agile, more risk-taking and being more open to new ideas and experimentation. All stakeholders need to heavily invest in tech and digital capabilities. Every product, every process, everything that a company does has to be re-thought and re-developed from scratch to be delivered digitally without affecting customer engagement and satisfaction. From application to KYC to fulfilment, the industry needs to re-imagine everything. The pandemic has given us all a golden opportunity to re-invent ourselves.

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