BENGALURU: The move by lenders to curb supply of small ticket loans will surely result in reducing
the pace of penetration into under-served communities, said experts.
“However, we believe that it will be short-lived as the industry will adjust to the situation by adopting better underwriting practices and growing a sustainable business. The BNPL (buy now pay later) model will see a short-term impact on the access of credit to the under-served communities since a large share of consumers who were first-time credit users subscribed to small ticket loans,” said Aditya Gupta, Co-founder & CEO, Credilio.
The Reserve Bank of India (RBI) recently advised banks to exercise caution with unsecured loans, as they have grown significantly faster and RBI Governor Shaktikanta Das asked banks and non-banking financial companies to strengthen their internal surveillance mechanisms.
The central bank also increased risk weights on consumer credit exposure of banks. Paytm too last week announced that in consultation with lending partners, the company has recalibrated the portfolio organisation of less than Rs 50,000, which is prominently the postpaid loan product. It said this will now be a smaller part of its loan distribution business going forward.
Paytm also said that Merchant loans, which are given to MSME as business loans, will continue to be a focus for the company. As these loans are given for business purposes to small merchants, they don’t get impacted by the recent regulatory guidance.
The BNPL model has been one of the most popular forms of small-ticket lending. Experts believe the industry is working towards fine-tuning business models to bring back the products in the market.
Motilal Oswal Financial Services said Paytm’s strategy to move away from small ticket size BNPL loans will affect the total loan originations via the platform as the segment forms over 50% of total disbursements.
“Take rates are expected to be marginally affected as BNPL as a product has lower take rates; however, a pick-up in higher ticket size personal loans should offset the overall impact,” it added.
“Our experience with fintech lenders offering small ticket loans has not been very productive in the past due to a range of issues such as lack of consistency, limited disbursal limits and variable interest rates,” Credilio CEO said.
He added that they never ‘sacrificed’ speed of underwriting for offering better loan propositions to consumers. “Our small ticket loans (primarily those under R 50,000) contribute less than 10% in terms of value. So RBI’s new ruling does not have any significant impact on the company’s revenue or profitability,” he added.