The lending market in India grew 11.1 percent to Rs 174.3 lakh crore as of March 2022, as compared to previous fiscal year, credit bureau CRIF High Mark said in the second edition of its report, How India Lends. The report further mentioned that non-banking financial companies (NBFCs) and other digital lenders dominated major sectors like home and microfinance loans, credit cards, business and consumer loans, two-wheeler loans and retail loans. Whereas traditional banks dominated the commercial loans sector.
During the initial days of the pandemic, there was an indication in the market that the demand for loans through traditional lending channels was at its peak. But as demand rose, supply shrank from banks due to challenges in other parts of their business and owing to pandemic restrictions.
During the same period, digital lending platforms such as fintechs, NBFCs and other similar entities jumped on the lending bandwagon. This paved the way for digital lending entities to focus on their lending mechanisms and streamline their operations. One of the many advantages with digital lending companies is that they provide flexibility and remote accessibility to their services, which was the major factor for their rise during the pandemic.
“The digital lending landscape’s evolution is aided by technology to cater to the borrowers’ increasing needs for accessible, affordable, and personalised lending. As such, embedded financing has become more mainstream than ever before,” said Alok Mittal, chief executive officer, Indifi Technologies, a digital lending platform.
Growth and trends
Data with Statista suggested that micro, small and medium enterprises (MSME) contributed around 30 percent to GDP and employed around 110 million people in more than 60 million enterprises.
“Agriculture and allied activities and micro and small industries showed tremendous credit growth. Large industries’ credit growth rate improved, while medium industries’ growth rate moderated, apparently due to the base effect.
In the post-pandemic period, latent demand has resulted in a retail credit growth rate of close to 20 percent combined for housing and vehicle loans,” said Jyoti Prakash Gadia, Managing Director, Resurgent India, a merchant bank.
Mittal said that Indifi recently registered its first profitable quarter, in Q1 FY23.
“Growth was pumped by our standing partnerships with leading digital ecosystems across different industries like e-commerce, payments, banks and NBFCs, etc.,” Mittal said.
Other than lending to meet the rising demand in the MSME and other industrial sectors, digital lenders also expanded their reach to satisfy the borrowing power of retail consumers.
Mihir Gandhi, Partner Leader, Payments Transformation with PwC India, explained that there was an increase in consumer consumption for lifestyle and other needs.
“Looking at the demand side of the lending mechanism, consumers have started to borrow for their lifestyle and increased consumption in apparels, travel, dining, etc, which they weren’t able to do during the pandemic,” Gandhi said.
Karan Desai, Director, RuLoans, a retail loans and cards distribution company that recently launched its online platform, echoed similar views. “The trend extends from traditional uses like home purchase, working capital for business all the way to now using personal loans to fund discretionary purchases like phones, holidays and credit cards to earn points for travel, dining, etc.,” Desai said.
Traditional vs digital
Reports said that NBFCs and fintechs in India witnessed major growth during the pandemic and are expected to be worth over $350 billion by 2023. The business opportunity is clear from the growth recorded by digital lending companies such as Lendingkart, InCred and Aye Finance in assets under management (AUM).
“The main advantage of digital lending is comfortable and easy access via mobile devices as well as less paperwork and eligibility checks than in a bank branch office,” noted the Statista report.
“The renewed focus on data centricity has strengthened the ecosystem approach to lending that is driven by partnerships between NBFCs and tech aggregators. This is done through integrated application programming interfaces (APIs), which allow digital lenders to swiftly assess loans by accessing data from any third-party vendor, including public and private organisations,” Mittal added.
Mukesh Chand, Senior Counsel, Economics Law Practice Advocates and Solicitors, explained that due to digitisation, ratings agencies expect bank credit to expand by 13 percent in 2022-23, up from 11.5 percent in 2021-22.
“Digitisation of various processes and services and lending activities has been also a major factor in increasing the reach of the lending industry to a wider spectrum. With increased demand for retail and working-capital loans, the outlook for the lending industry continues to be positive,” Chand said.
Outlook
Inc42’s report ‘State Of Indian Fintech Ecosystem Q3 2022’ stated that digital lending in India is expected to become a $1.3 trillion market opportunity by 2030. The digital lending market size is set to grow from $270 billion in 2022 at a CAGR of 22 percent between 2022 and 2030.
Mittal said that as consumption and demand for capital increases, the prospects for digital lending remain bright.
“The traditional taboo around leverage has gone and the increasing urbanisation and digitisation of the country, coupled with the fairly low debt to gross domestic product (GDP) ratio, makes us confident that the retail lending industry in India will grow exponentially in both breadth and depth over the next decade and more,” Desai said.
On the other hand, experts have also opined that there could be a mix of slow or stagnant growth.
“Manufacturing activity in India is yet to pick up momentum. Corporates, too, on account of various such factors, are still preferring to wait and watch for newer investment. While such factors would certainly affect the growth of lending, the fact is we have very strong support by way of domestic demand, which would act as a buffer from external factors and ensure sustained growth for the lending industry,” Chand explained.
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