Bankers are concerned about the credit appraisal process followed by some of these fintech companies, which have led the credit growth in this segment. The Experian report further points out that the maximum growth in personal loans has come from small cities like Alwar and Barpeta.
“This is a clear indication that most new-age fintech companies, in order to get more clientele on board, are not following due diligence when it comes to credit appraisal,” said a senior banker with the state-run Punjab National Bank.
Earlier this month, the banking sector regulator, the Reserve Bank of India, or RBI, increased risk weights on unsecured personal loans, credit cards, and lending to nonbank finance companies (NBFCs) by 25 percentage points.
This comes after concerns were raised about increased lending on unsecured retail loans. According to Transunion Cibil, a credit bureau, small-ticket personal loans of less than Rs 50,000 are particularly at higher risk, and reported delinquencies (90-plus days past due) for this type of lending were 5.4% as of June 2023.
As per the white paper by Experian, Building a Sustainable Fintech Portfolio, post-pandemic Fintech growth leapfrogged on small-ticket unsecured personal loans.”Fintech created and nurtured a new class of borrowers (BNPL) with no apparent need for credit by building affinity through the creation of a simplified customer journey,” it noted.Earlier, the Indian Bankers’ Association, or IBA, pointed out that banks are out of sight of such underlying transactions and that these firms do not report to credit bureaus, which increases the risk for other lenders who rely on data available through credit bureaus.
As per the Experian Hunter analysis, Fintech and New Age NBFCs have a higher sourcing from millennials, highly educated, and in the small-ticket segment. “Further, the catchments where fintechs have a greater presence also have a higher reported fraud incidence,” the report noted.
Another banker with the state-run Bank of Baroda noted that there is a need to further strengthen the central know your customer (CKYC) format in order to avoid multiple accounts in the banking system with different KYC identifications. “Because of this loophole, there have been reports that the actual data of a borrower wasn’t captured properly,” he said.
Last year, RBI asked non-bank prepaid payment instrument (PPI) issuers not to load their wallets and cards from credit lines or preset borrowing limits.
The Experian report states that while post-pandemic net delinquency has improved for fintech, this could be attributed to a higher charge-off and may not necessarily be indicative of an improvement in asset quality.
