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Delinquent accounts for India’s fintech lenders nearly doubled between August 2019 and August 2020 as they disbursed loans to high-risk customers, according to a joint report by credit bureau TransUnion Cibil and the Digital Lenders Association of India (DLAI).

Fintech lenders saw a surge in delinquencies to 43%, compared to 5% for private banks by August 2020-end, following the coronavirus outbreak. The report takes into account any loan where repayments were overdue even for a day. In August 2019, 22% of fintech loan accounts were delinquent.

“Compared to peer members, the huge volumes in fintechs were largely small-ticket loans and in riskier segments. Banks have generally been lending to consumers in prime and above-risk tiers, and those with a relatively stable flow of income, and leveraging their liability base to acquire personal loans," the report said.

As the pandemic left millions jobless and impacted cashflows, borrowers struggled to repay loans. Lenders with large concentrations of borrowers with low credit scores were badly hit.

“With the onset of the pandemic and the increase in people migrating to their hometowns, collections have become a stressful and challenging activity. Fintechs need to increase focus on collections and build analytics-driven models that will help them collect profitably," said Anurag Jain, president, DLAI, and founder and executive director of KredX.

According to the report, the rise in delinquent accounts after February 2020 is because of accounts flowing to a higher delinquency bucket each month, bloating the 90-plus days past due (DPD) bucket. While the number of live accounts in the over 90-day overdue bracket stood at 373,000 in January, it gradually rose to 947,000 in June, and was at more than 1 million in July, before declining to 938,000 in August 2020.

“Fintechs reduced new loan originations and sourcing of customers drastically just after the pandemic hit, resulting in fewer fresh accounts. This, coupled with higher run-offs because of short-tenure loans, led to a drop in the number of accounts in the standard (zero day overdue) bucket," it said.

With fewer accounts in lower delinquency buckets, collection teams had fewer accounts to manage, the report said. “At the same time, the consumer cash crunch caused older accounts to roll forward to higher delinquency buckets, driving a rise in 90+ DPD buckets and impacting collections efficiency," it said.

Analysts said auto-debit bounce data is a key indicator of distress among borrowers of fintech and other non-bank lenders. Last August, 40.3% of all auto-debit transactions had failed, because of insufficient funds in the accounts of borrowers.

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