Digital lenders stare at dip in disbursals this fiscal due to pandemic

Cost of capital for most lenders has also gone up as fund flows from banks and NBFCs have dried up despite liquidity infusion by RBI; but things are looking up from last month as establishments reopen

Fintech firms operating in the digital lending space are staring at a drop in overall disbursals in the current financial year, as demand has dipped by around 60 per cent during the past three months. However, things have started looking up June onwards with unlocking in most parts of the country.  

Industry experts, however, said that the cost of capital for these digital lenders, many of which are NBFCs, has shot up by up to 200 basis points despite surplus liquidity in the system.

According to sources in the know, 15-20 per cent of the books of most digital lenders are currently under moratorium, leading to higher provisioning requirements. Though collection activity remains robust, industry watchers expect higher loan defaults than usual this fiscal.

“Demand is slowly coming back with the opening up of cities across the country. During the past three months, demand for new loans was down by around 60 per cent, but is coming back slowly,” said Akshay Mehrotra, co-founder & CEO of EarlySalary. The fintech firm, which provides unsecured loans to salaried individuals, has revisited its growth plans for this fiscal.

“We ended with a balance sheet size of Rs 350 crore in the last fiscal. We expected to grow by 100 per cent during this fiscal year. However, we have scaled down our projections for this year owing to the pandemic,” he added.  

Though the total disbursals by all digital lenders will not be more than Rs 10,000 crore annually, the growth rate for most players is almost 100 per cent year-on-year basis.

These lenders are mostly disbursing loans to salaried individuals in which the monthly salary slip is the basic document for gauging credit worthiness. Most of these borrowers are in the 20-35 years age bracket and largely hold white collar jobs.

According to industry experts, most of the borrowers are engineers in the IT services sector, apart from staffers in manufacturing firms. With IT firms freezing wage hikes this year and many staffers losing jobs in manufacturing units, the propensity to borrow among regular borrowers has declined in the past three months.

The psychological aspect of taking less debt during period of crisis is also playing a major role.

“When the income levels of people are expected to increase, we are using prudent lending policies in disbursing of loans,” said says Satyam Kumar, CEO & co-founder of LoanTap. “With most establishments opening up, things are improving for sure. As digital lenders, we are better-placed than other traditional lenders to drive growth in coming months,” he added.

According to Kumar, while most companies used to give 50 per cent of income level as loan pre-Covid, it has now come down to around 35 per cent. 

Mehrotra of EarlySalary has similar views on the matter. “Just after the lockdown, we increased the threshold for providing loans to borrowers, which includes higher credit ratings and proof of job continuity, among others. Though we have eased it a little, we are going to lend to more prime customers,” said Mehrotra.  

Sources in the know said that while many players which have coped with the pandemic-induced slowdown efficiently, many others had stopped lending all together during lockdown months.

“Many lenders had stopped lending in April and most parts of May. These players have also seen the cost of capital rising by 250 basis points in recent months,” said an industry source who wished not to be quoted. “Rejection rates have increased in recent time due to selective lending decisions,” the person added.  

Meanwhile, digital lenders are hoping to get benefit from the RBI’s NBFC-assistance package worth Rs 50,000 crore. The central bank directed banks to lend 15 per cent of the corpus to NBFCs with assets below Rs 500 crore. 

“Some of us would benefit from this move. We heard that money has already been sanctioned. So, liquidity flow from this window will definitely reduce the cost of capital for digital lenders” said Kumar of LoanTap.  

While the industry has gone though a rough patch in recent months, signs of early recovery is already visible. With Covid like pandemic making physical lending a difficult proposition, fintech players are expecting to have sound growth prospects going ahead.

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