After RBI tightens lending norms, will fintech see a slowdown? Experts explain
Experts expect India's fintech and NBFC segment to be the worst hit after the RBI released a new directive to increase risk weightage for unsecured loans. The borrowers may have to bar the cost.
India's fintech and NBFC segment is expected to worse hit after the Reserve Bank of India (RBI) released a new directive for lending institutions to increase their risk weightage or the amount of capital to be set aside to cover unsecured loans disbursed by them, according to experts.
As per RBI's new guidelines, fintech platforms offering unsecured personal loans, consumer durable loans, and credit cards will be required to increase their risk weightage against such loans from 100 per cent to 125 per cent.
In a recent report by the Centre for Advanced Financial Research and Learning (CAFRAL), an independent body set up by the RBI, it noted that NBFC is expected to "exceed traditional banks by 2030."
LiveMint spoke with Fintech and NBFC players to understand how the new lending norms are going to affect the sector.
Who will bear the cost?
"With an increase in the risk weights for unsecured personal loans, we expect the lending from Banks and NBFCs to lending apps to become more expensive. This will create pricing pressure for the lending apps," said Yogi Sadana, Founder of Zype. As a result, browsers may have to incur the cost of increased risk weight for their unsecured loans with higher lending rates.
As a first step, "industry is planning to firstly pass on the increased cost to the borrowers. However, they will "assess how these costs can be absorbed partly so the overall cost of unsecured credit doesn't really increase that much," said, Bhuvan Rustagi, COO and Co-Founder, Per Annum and Lendbox.
"It is likely that the availability of capital lines for lending apps will decrease and interest rates will increase, leading to lower demand for consumer credit," said Neha Juneja, Founder & CEO of IndiaP2P.com. Further, the fintech sector is expected to see a reduction in "RoE on consumer loans and may require additional equity raises to maintain consumer lending book growth, indicating that this impact will sustain in the medium term as well."
"The new norms will affect unsecured personal loans, credit cards and loans provided by Banks and NBFCs to other NBFCs for unsecured lending. It will not affect home loans, education loans, vehicle loans and other secured products," clarified Sadana.
“This requirement, raising risk weightages to 125% from the existing 100% for personal loans and 125% to 150% for credit card receivables, notably affects fintech platforms engaged in offering unsecured personal loans, consumer durable loans, and credit cards, and gold loans,” said, Pramit Joshi, Senior Director, Credlix.
"Broadly, the segment constitutes personal loans, i.e. loans taken by individuals without provision of any collateral for purposes such as consumption (credit cards and other shopping spends), top-up loans, including those that are issued on secured loans such as a top-up on an existing two-wheeler loan, personal loans taken for working capital needs etc.," said Juneja.
"This intervention is by design for risk reduction and prudence in consumer lending. Lenders will now become more stringent, and we should see a reduction in the indebtedness levels of consumers," Juneja further added. “The current intervention aims to ensure that risk is contained for sustained growth.”
Also Read | RBI ups consumer loans’ risk weights
Impact on NBFC's growth: A temporary shift
"The predictions for NBFCs to outpace traditional banks by 2030 may be revisited due to the new regulatory measures. The higher cost of lending could slow down the volume of unsecured loan issuances, which might affect the rapid growth trajectory that NBFCs have been experiencing." Vinod Yadav, said Chief Technology Officer at AGTB Bank, UAE.
"However, the emphasis on a more stable and cautious lending approach could benefit the sector in the long term. By reinforcing the stability and health of their portfolios, NBFCs may be better positioned for sustainable growth even if the pace is slower than previously anticipated," said, Ankur Grover, CEO and CoFounder at Zoksh Pay.
“This change encourages more prudent lending practices and could lead to a healthier, more sustainable growth trajectory for NBFCs,” Rohit Arora, CEO & Co-founder at Biz2X & Biz2Credit.
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First Published:20 Nov 2023, 05:01 PM IST
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