A significant change has been observed in the digital lending as the NBFCs have been at the forefront of digital lending with the traditional lenders playing a lesser role. An important consequence of the digital revolution has been the growth of digital lending.
A recent report by the Center for Advanced Financial Research and Learning (CAFRAL), using data on a representative sample of banks and NBFCs highlighted that the share of digital lending to total lending was 60.53% for NBFCs as opposed to a smaller 5.53% . for the banks in the Financial Year 2020.
The growth is remarkable considering that the proportion of digital loans in banks and NBFCs was only 0.33% and 0.53%, respectively in 2016.
RBI CAFRAL also mentioned that the lending through digital mode vis-à-vis physical mode is still at a nascent stage for banks with Rs 1.12 lakh crore through digital mode against Rs 53.08 lakh crore through physical mode.
In contrast, for NBFCs, a higher proportion of lending (‘0.23 lakh crore through digital mode versus Rs 1.93 lakh crore through physical mode) is through the digital mode.
It is worth highlighting that in FY 2017, there was not much difference between banks (0.31 percent) and NBFCs (0.55 percent) in terms of the share of total amount of loan disbursed through digital mode while NBFCs lagged behind in terms of total amount. number of digital loans with a share of 0.68 percent against 1.43% for banks.
How do NBFCs overtake banks?
Digital loan is more in retail loans or small ticket loans. The customer segments that the banks usually do not serve are the main beneficiaries of this digital lending. People who are the right target of digital loans, or NBFC loans, are often those who are not well served by the banks. That is why you see the majority of the business is with the NBFCs, said Aditya Damani, Founder and CEO of Credit Fair.
“Secondly, in India, credit demand is growing. It is increased by retail because the young population of India 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 a supply perspective, there are huge inflows from 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 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 rapidly. RBI wants it to be more targeted and transparent. The platforms that are conservative in lending and are transparent will see better growth in the long run.
Speaking on the development, Bejoy Jolly Anthraper, Business Head, Geojit Credits, said, “Digital lending space in India is growing rapidly and has emerged to meet various needs of consumers and businesses. Smartphone penetration and data availability through 4G/5G has fueled the digital growth in India . In addition to that, fintech innovations have brought a new era of financial services to digital lending. A change in consumer behavior has promoted the demand in digital loan products. Access to money and speed with which they get such funding has helped innovate new financial solutions.”
Instant personal loans, Peer-to-peer loans, Digital credit cards, Microloans, Loan against securities are to name a few lending products that meet the needs of various consumers. Loan Against mutual funds helps customers get easy access to their assets created over a longer period without liquidating the assets during the urgent requirement of fund in a very short period with few taps on their mobile phone, he added.
“Regulatory interventions and various guidelines drawn up by governing bodies have given a lot of confidence to both borrowers and lenders in this space.”