The RBI last month allowed banks and other financial institutions to provide a moratorium of three months on all all term loans. The moratorium comes as a relief to people facing liquidity crunch in paying off their equated monthly installments (EMI) amid a nationwide, 21-day lockdown.
DLAI, which represents over 80 online lending firms such as CapitalFloat, Paisabazaar and ZestMoney, said that extending RBI’s moratorium to all retail borrowers is only possible at scale if large banks and NBFCs who lend to digital lending companies also extend the moratorium.
“We believe that the spirit of the RBI measure was to achieve a two-sided moratorium that maintains the stability of the financial system. Without a back-to-back moratorium on the funding side, all retail lenders would struggle to extend the moratorium widely to their end customers," said DLAI in response to Mint’s queries.
Online lending app LoanTap said that at least 25% of its outstanding borrowers have opted for the EMI deferment option for March, even as this could add a significant amount of interest to the original principal amount borrowed. If a borrower chooses to defer his or her EMI, then the interest charges for the skipped EMIs will be added to the principal amount or instead recovered by the lender after the loan term ends.
“Since the (moratorium) policy was announced only on 27th of March, only 25% of our (outstanding) customers are on deferment, and I expect this to touch 35-40% by May 2020," Satyam Kumar, executive director of LoanTap, said in a phone interview.
Kumar said LoanTap has provided the moratorium option to all salaried employees, including for personal loans and for salary overdraft loans. LoanTap has not extended the moratorium to salaried borrowers in the enterprise IT and insurance segments because these segments are least impacted, and many IT firms have also started providing bonus and extra pay, according to Kumar.
LoanTap has suspended lending operations since it undertakes manual KYC where the cheque has to be physically signed by the customer agent. Kumar added that the company will resume lending once the lockdown is lifted. He said the volume of loans processed will decline at least 50-55% over the the next two quarters.
While experts agree that digital lending platforms may see a small rise in non-performing assets (NPAs), they will still be recoverable. Digital lenders typically serve both salaried and self-employed borrowers. Some startups such as LoanTap carve out loans for specific use cases such as travel, home renovation, medical expenses, and weddings. Usually, borrowers in this segment have a history of credit spending.
Some lending startups also focus on customers with no history of credit spending, and those who do not have access to traditional financing options. These firms build their own credit rating model using customer data sourced from trading and brokerage accounts, and credit and debit card transactions, and even public user data from social media accounts.
“Successful transmission (of the moratorium to borrowers), while maintaining the stability of the financial system, will require all constituents -- retail lenders, wholesale lenders, private banks, and rating agencies -- to work together... If implemented in true spirit, the NPAs (arising from the moratorium) can definitely be curtailed," added DLAI in response to Mint’s queries.
Experts also pointed out that SME lending will take a hit over the next few quarters, even though most SME borrowers have a good repayment history. “SMEs are among the best performing borrowers when it comes to repayment. But I also expect SMEs will borrow far less in the coming quarters and limit borrowing only for procurement," said Sampad Swain, chief executive of Instamojo, a payment platform that caters to micro, small and medium enterprises (MSMEs).
He added that Instamojo’s independent sellers in the events and concerts, hospitality, luxury and premium brands, and travel segments were the worst hit due to the lockdown. Online transactions of these businesses on Instamojo declined by at least 70% year-on-year in March, said Swain in a phone interview.
With SME lending, digital lenders can easily pin-point industry segments that are affected most, and extend moratorium benefits efficiently. But this isn’t the case with retail lending.
According to Adhil Shetty, chief executive, Bankbazaar, the online lending industry is still trying to get clarity on what kind of moratorium they could get from banks and what kind of moratorium they are going to be able to offer to their customers, “It is going to be a challenging 6 months, but high-quality players will move from strength to strength," added Shetty in an emailed response.