A significant shift has been observed in the digital lending space as the NBFCs have been at the forefront of digital lending wth the traditional lenders playing a smaller role. An important consequence of the digital revolution has been the growth in digital lending.
A recent report by the Centre for Advanced Financial Research and Learning (CAFRAL), through a data on a representative sample of banks and NBFCs has highlighted that the share of digital lending to overall lending was 60.53% for NBFCs as opposed to a smaller 5.53% for the banks in the Financial Year 2020.
The growth is noteworthy considering the proportion of digital lending in banks and NBFCs was merely 0.33% and 0.53%, respectively in 2016.
RBI CAFRAL also mentioned that the lending through digital mode relative to physical mode is still at a nascent stage for banks with 1.12 lakh crore via digital mode vis-à-vis 53.08 lakh crore via physical mode.
In contrast, for NBFCs, a higher proportion of lending (`0.23 lakh crore via digital mode vis-à-vis 1.93 lakh crore via physical mode) is through the digital mode.
It is worth highlighting that in FY 2017, there was not much difference between banks (0.31 per cent) and NBFCs (0.55 per cent) in terms of the share of total amount of loan disbursed through digital mode whereas NBFCs were lagging in terms of total number of digital loans with a share of 0.68 per cent vis-à-vis 1.43% for banks.
How NBFCs are overtaking banks?
Digital lending is more in retail loans or small-ticket loans. The customer segments which the banks typically do not serve are the major beneficiaries of this digital lending spree. People who are the right target of digital lending, or NBFC loans, are often the ones who are not well served by the banks. That’s why you see the majority of the business is with the NBFCs, said Aditya Damani, Founder & CEO of Credit Fair.
“Secondly, in India, credit demand is growing. It is driven more by retail as India’s young population is huge and often their credit demand is not fully met by the traditional lenders. So, they strive to get more credit from digital lenders. From the demand perspective, macro factors are driving the credit growth and, from supply perspective, there are huge inflows of equity as well as debt funds for digital lending,” he said.
These factors also support the growth. Ultimately, it is expected to be a trillion dollar market in a few years time and the growth outlook remains robust. According to the latest IIFL FinTech report, the digital lending market is expected to grow to $515 billion by 2030. Across the board, there is robust growth in every segment, Damani said.
There are loans for salaried professionals, small-ticket personal loans and MSME loans — it could be revolving credit or small-ticket business loans — which are growing quickly. RBI wants it to be more purpose driven and transparent. The platforms that are conservative in lending and are transparent will see better growth in the long term.
Speaking on the development, Bejoy Jolly Anthraper, Business Head of Geojit Credits, said, “Digital lending space in India is growing fast and has emerged to meet diverse needs of consumers and businesses. Smartphone penetration and data availability via 4G/5G has fuelled the digital growth in India. Added to that, fintech innovations have brought a new era of financial services to digital lending. Shift in consumer behaviour has propelled the demand in digital lending products. Access to money and speed in which they receive such funding, has helped in innovating new financial solutions.”
Instant personal loans, Peer to peer lending, Digital credit Cards, Micro loans, Loan against Securities are to name a few lending products which cater to the needs of diverse consumers. Loan Against mutual funds help clients to get easy access to their assets created over a longer period without liquidating the assets during the urgent fund requirement in a very short period with few taps on their mobile, he added.
“Regulatory interventions and various guidelines drawn by governing bodies have given a lot of confidence to both borrowers and lenders in this space.”
