Page 45 - Banking Finance February 2024

ARTICLE

Fin Techs are appealing first time loan takers or what is helps the bank/NBFC partner to get access to new datasets
referred to "New to Credit" (NTC) borrowers due to their around the customer from the nonfinancial organization.
simplified underwriting procedures and convenience of on Banks are capitalizing on this through targeted analytics
boarding. As per study conducted by CIBIL, Fin Tech lenders strategies to customize product offerings.
have on boarded 7.3 million NTC customers in FY 2022-23
(up from 125 million in FY 2018-19). Some examples of embedded credits are:
a) Embedded credit options at bill payment desks at
However, in their pursuit for aggressive growth, fin tech Hospitals for patients to cover medical expenses.
players have often been criticized for their overtly simplified
Underwriting methods and resultant dilution of lending b) A Preapproved Buy Now, Pay Later (BNPL) product at
standards. e-Commerce sites/ Car Dealerships (for purchase of
accessories).
Youthful demography - Aspirational Young c) BNPL products while purchasing a Movie on a smart TV
Middle Class and Rising confidence level. d) Co-branded Credit Cards
Indian economy is in the midst of a demographic dividend.
The median age of India is 28.4 years. This young population This concept has gained popularity in India and credit is
is not only a source of India's competitive advantage, but getting embedded in almost all the products and services
also defines the consumption power of a young population which customers are expected to avail. This, in turn, is
towards discretionary expenditure. The young population of driving the growth of unsecured retail credit.
India, especially the millennial and Gen Z population (part
of the digital natives) are gradually opening up to credit Conclusion -
driven consumption. The formalization of the economy
through digitalization of payment system provides an RBI's move to increase the Risk Weights on consumer lending
avenue for better credit assessment of the citizens who in has alerted the industry to be more mindful while giving
the past may not have been eligible for consumer loans. As unsecured lending. It is more of an advisory to the regulated
the digital natives are having a strong visibility of future entities to ramp up their systems and processes of appraising
earnings, there is an increasing confidence to borrow. Large and disbursing unsecured loans. The move has made some
sections of the youth are taking loans for discretionary NBFCs/fin tech players to introspect on the pace of growth
spends like theme-based destination weddings, foreign of disbursing personal loans in the short term.
travels etc to fulfill aspirations and live life to the fullest. This
trend of financing current consumption not just with current However, to a larger extent, the increase in demand is a
income but also with a part of future income, in turn, is reflection of a changing society where earlier loans was
fuelling the growth story of unsecured retail lending in India. considered a taboo and today, people are open to taking
credit. Hence, the growing demands for unsecured loans
Advent of Embedded Credit primarily due to the trends discussed above are more
structural in nature and will remain intact.
Embedded banking refers to the integration of banking/
financial services or tools within the products or services of
a customer facing non-financial organization. When the The need of the hour is consistent investment in technology
banking product is of the nature of credit facilities, it and use of data and analytics. This will ensure further
becomes embedded credit. For example, a customer strengthening the underwriting and risk monitoring
purchasing a laptop on an e-commerce site can convert her capabilities of all participants in the retail credit industry.
purchase into EMI of 12 months tenure without having to This will ensure that all avoidable risk buildup is mitigated
go to any website of a Bank/NBFC. The entire loan journey and usher in an era of sustainable credit growth.
is ingrained within the digital platform of the e-commerce
site (non-financial organization) and the process gets References :

completed within a span of few minutes. This process also Various Sources.

40 | 2024 | FEBRUARY | BANKING FINANCE