Mumbai: Several lending startups in India are returning to raise fresh equity because of an easing of the liquidity situation. The startups had kept their plans in abeyance following the liquidity crisis that struck the non-bank lending sector last year.
Domestic non-banking financial companies (NBFCs), which saw the fastest credit growth in the past few years, were weighed down by a severe liquidity crunch after defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS) in September. Loan disbursals slowed amid a pressure on balance sheets as NBFCs struggled to repay short-term loans.
Digital lending startups, including Capital Float, Lendingkart and Rubique are looking to hit the road to raise fresh equity, according to two people aware of the matter
Rubique is in the initial stages of its fundraise, while Capital Float is in talks with investors to raise up to $150 million, Mint had reported on 4 December. Lendingkart will raise more than $100 million, said a person aware of the startup’s plans, requesting anonymity.
Lending startups either lend from their own resources through a NBFC or act as aggregators, using technology-based credit underwriting tools, for banks and NBFCs, providing them access to customers that the banks would generally not lend to because of a lack of formal credit scores. Capital Float and LendingKart have their own NBFCs and lend from their own balance sheets, while Rubique is an online lending marketplace.
“We were planning to raise fresh money in September last year, but like several others, we had to put our plans on hold," said Manav Jeet, managing director and chief executive officer (CEO) of Rubique. “Investors get cautious during such a time and valuations become a concern when a sector is facing headwinds."
Several digital lending startups, which saw their disbursements halve following the liquidity crisis, have turned more optimistic and have begun to revisit their fundraising plans, said a venture capital investor on condition of anonymity.
“Liquidity is quite robust now, significantly better than what it was in the immediate aftermath of the IL&FS event, and NBFCs with good track record continue to see traction from banks, financial institutions and even alternative investment funds," said Ranvir Singh, founder and managing director, Kissht, which allows consumers to pay for their online orders in monthly instalments, without a credit card.
To be sure, even as the liquidity scenario has improved, investors are still cautious.
“Investment activity in lending space has been sluggish in last two quarters as investors have been waiting to see full impact of liquidity squeeze," said Satyam Kumar, co-founder and CEO of Loantap, which offers loans and overdrafts to salaried professionals.
“Naturally, many NBFCs, small finance banks, MFIs and Fintechs are trying to tap the equity market to keep pace with the customer demand. However, unlike China, we are not producing unicorns every week, so there is no funding frenzy and PEs have been watchful of the developments," he said.
Upcoming general elections have also added to the cautious stance of investors.
“While the liquidity situation has certainty improved, lending startups are also looking at funding post elections since there will be more certainty. Electoral policies also affect these startups that lend to farmers and agri-based sectors," said Anil Joshi, managing partner at Unicorn India Ventures, an early stage investor.