The biggest challenge posing lenders in any market place, be it banks, NBFC’s or even unorganized loan disbursers, is the risk of not being able to recover their money.
While the private sector has had relatively better records of axing NPAs, new-age lenders in the form of Fintech companies pose new challenges.
Most Fintech companies in India have not yet forayed into lending, but some have taken the bold step with promising results. Firms like Capital Float, Lending Kart, MoneyTap and much more have been able to cater to an audience that is tech-savvy, but weary of long and bulky procedures to obtain a loan.
Given, credit records are relatively easier to track online now than it was five years ago, data analytics software coupled with online PAN, UIDAI records that facilitate e-KYC has made loaning money super easy. But what about the risk? After all, the basic model is still lending a sum of money at a given interest rate, to be paid in parts.
Low NPAs But How?
Capital Float, the Bengaluru-based digital SME lender said it had less than 1% of NPA on the current loans disbursed. The company is disbursing close to INR 250-core worth loans every month and hopes to topple that figure soon. Given that it does not have actual collection agents on the ground and deals digitally, the NPA levels are quite impressive.
Explaining how it manages to achieve these figures just by operating digitally, Sashank Rishyasringa, Co-founder of Capital Float said,” It’s partly unfair to compare a bank’s NPA to ours’ as most of the defaulters in banks are big companies or HNI’s and we yet do not approve such staggering amounts to a single party. Rigorous data checks help waive the risk factor associated with potential defaulters.”
Yes, controlled disbursement is a tactic that many NBFC’s like Bajaj Finance have applied in the past few years. The strategy is to first see how a consumer performs with a given amount of loan and then only make them eligible for larger amounts. But what about the risk associated with first-time customers not paying up?
“It’s a matter of trust,” said Anuj Kacker Co-founder of MoneyTap that gives out small loans. “We don’t arbitrarily give out loans to anyone and everyone. We have an extensive database provided by banks that we work with. It helps us track an individual’s financial record. With almost every transaction being recorded online, the data crunching takes just minutes while being cautious that the individual is capable of paying the money back on time,” he added.
Working with banks is a great cushion, which helps these Fintech players tap on their corpus. But not everyone is convinced with the sassy digital lending mechanism with no ground-collection. “Credibility and trust is alright, but without a ground collection mechanism, there is no guarantee of the money being returned, even though the individual may be obligated to do so,” said Mohan Kumar, Partner at Norwest Venture Partners, which has close to a billion-dollar investment in Indian companies, ranging from micro-finance companies Shriram City to banks like Yes Bank and RBL, to start-up giants like Swiggy and Pepperfry.
Kumar said private banks like HDFC that have an impressive NPA record, has been able to do so not just because it has cumulative digital data, but enough ground reach to recover the money lent. While Fintech lenders say they have ties up with banks and are well within the purview of RBI guidelines, Kumar is weary of the regulatory aspects of Fintech lenders saying lending needs t be restricted to banks largely.
The Way Forward
“There is no clear regulation on where Fintech companies stand in today’s date. Bankers should be the only ones lending and even if such companies want to help do so processing the big data should be their task and not setting interest rates,” said Kumar.
Finance Minister Arum Jaitley-headed committee is expected to propose regulations for new-age financial elements like Fintech companies and cryptocurrency, inwhich peer-to-peer lending will be in focus in case of the former.