Fintech companies anticipate that the Reserve Bank of India’s (RBI) recent directive on unsecured loans will manifest its impact within the next six to 12 months, prompting them to diversify and strengthen their secured portfolio. Fintechs that secure funds through banks or non-banking finance companies (NBFCs) are now aiming to rapidly expand their secured portfolios to make up at least 40% of their total portfolio.
In response to the RBI’s tightening of norms for personal loans and credit cards, with an increase in capital requirements and risk weighting on retail loans, fintechs are considering various forms of secured products as part of their diversification strategy. This includes considering gold loans, matching the directives of the central bank and the growing interest in secured loans and gold loans observed in the banking sector.
Secured products
Fintech firms are expected to explore secured and senior secured loans (PSLs) as part of their diversification efforts. This diversification strategy may include products such as education loans, loans against property, SME/micro-SME loans and other forms of secured lending. The aim is to balance the portfolio between secured and unsecured loans, keeping in mind the RBI’s caution regarding the expansion of unsecured portfolios.
The RBI’s directive is seen by fintech companies as a measured response, in line with the central bank’s commitment to long-term financial stability. The strategy for diversification varies among fintech firms, with considerations for different types of secured loans based on the evolving market dynamics and regulatory landscape.
Fintechs recognize the need to strengthen consumer awareness, promoting cyber and financial literacy to prevent over-indebtedness and discourage the use of unauthorized lending programs. Concerns about higher delinquency among certain customers have prompted a call for increased awareness and financial education initiatives.
While fintechs believe that the immediate impact of the RBI orders will be minimal, they acknowledge the need to re-evaluate credit policies, given the increased risk weights. In the short term, there may be price pressures as leverage becomes more expensive, but a periodic review of risk and credit policies is seen as essential to assessing portfolio risk.