Page 44 - Banking Finance February 2024

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borrowings of NBFCs from Banks, the governor asked Recent Trends in Unsecured Retail
the stakeholders to be mindful of the increasing Lending in India
interconnectedness between banks and NBFCs to avoid
any sort of contagion risk. He advised the banks to Evolution of Digital Finance - Role of Fintechs
constantly evaluate their exposure to NBFCs and the The period 2019-2023 has seen the maturing of the Indian
exposure of individual NBFCs to multiple banks. The Fin-tech Ecosystem. India is currently the 3rd largest fin tech
NBFCs were advised to focus on "broad basing their ecosystem globally (1st -USA and 2nd -United Kingdom) with
funding sources and reducing over-dependence on bank 1500 plus Fin techs (450 plus in Lending Tech). These fin techs
funding". have a "Digital First" approach in its business and operation.
Due to their strong grip over technology; they have been
successful in providing a differentiated experience across the
To sum up, RBI wants the credit growth to be sustainable
customer lifecycle.
and intends the financial institutions to formulate their
business models in a manner in which an avoidable risk
During the COVID years, the Indian government has taken
buildup is mitigated.
many initiatives for digitalization of the economy facilitating
the growth of the fin tech lenders. Post -Covid unlocking,
Impact of the move: What RBI wants to they have also focused on penetrating their reach in the un-

achieve? served and underserved market. As per CIBIL data, the share
of loan origination of fin techs from Semi Urban and Rural
Increase in Risk Weights will result in banks and NBFC areas have improved from a modest 36% in FY 2018-19 to
allocating more capital against the unsecured loans they
51% in FY 2022-23 . As a result, Fin-Tech Lenders have
disburse. A point to note here is that the new regulation evolved from a largely urban to a geographically well
will also be applicable to outstanding consumer credit diversified play in just 5 Years.
portfolios (excluding housing loans, education loans, vehicle
loans and gold loans) of commercial banks and NBFCs. Basis CIBIL, Indian Fin techs have originated 79 million loans
Hence, the players having large proportion of exposure to amounting Rs 1107 Billion in FY 2022-23.
consumer credit will be impacted more.

Increase in capital allocation will entail capital costs. Hence,
the lenders have 2 options: a) Raising the interest rates on
unsecured lending b) Reduction in exposure to unsecured
loans and focus on segments which consume less capital.
Both these moves, in a way, will bring in what the RBI
intends; moderation in the growth of unsecured loans.

Source: Trans Union CIBIL.

As is seen above, the bulk (75.45%) of the loan origination
is in the Personal and Consumer loan category which cater
to the consumption needs of the borrowers. Consumption
Loans origination by Indian Fin Techs has risen from Rs 0.07
trillion in FY 2018-19 to 0.84 trillion in FY 2022-23 at an
impressive CAGR of around 98%.

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