India’s nascent digital lending sector is preparing to take a massive hit as the country locks down to check the spread of coronavirus with confirmed infections surging close to the 400-mark.
Startups engaged in lending to small businesses and consumers through digital platforms are expecting stress on their balance sheets, delayed payments of instalments and reduced demand over the next six months.
“These are early days but we are already seeing the situation becoming grim. Because of the lockdown, disbursals are slowing down, further repayments are getting delayed, we can see some excuses from our existing borrowers as well,” said a founder of a Mumbai- based lending startup.
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Moneycontrol spoke to multiple founders of such start-ups, who requested anonymity. While some said they would slow down lending, others said collections would be difficult if the virus that causes respiratory distress were to spread unchecked.
India has seen mushrooming of lending startups in the last few years, offering easy loans for almost everything – a cellphone, holiday or business-- disrupting different sectors.
In retail lending, Moneytap, Loantap and PaySense (acquired by PayU India) are some of the players.
In the ecommerce checkout financing space, there is ZestMoney and Kissht among others. Capital Float, Lendingkart and Flexiloans are the big names in the small and medium enterprises (SME) space.
Lending startups use a mix of debt and equity funds for their business. While equity infusion will become difficult as venture funds tighten their purse strings, debt funding from banks will be hard to come by and expensive as well.
“Banks will be extremely cautious while extending lending lines to NBFCs (non-banking finance companies). This along with slowing demand because of the economic impact of the coronavirus attack could have a significant impact on the health and growth prospects of this industry,” said Bhavik Hathi, managing director at Alvarez and Marsal.
The non-banking lending space has been going through a rough patch for some time. If 2019 was bad because of defaults at large NBFCs, the industry insiders believe 2020 could be worse. Some startups have already moved in to protect their asset quality.
“We have waived pre-payment or closures charges for customers, as they may have taken money for travel (or other discretionary spends), which is on hold, so they will not be paying unnecessary interest in this period,” said a founder of a Pune-based lending company.
The startups that extend credit to salaried retail customers might be better off but those geared towards small and medium businesses would find it tough, he said.
The founder of a Bengaluru-based credit-card startup said in the beginning, SME lending and payday loans would face the stress but given the slowdown, even retail lenders would struggle.