Forum to fight for retail consumers is critical: FREED's Ritesh Srivastava

With the RBI's intervention by way of risk weighting, retail credit growth has slowed down to around 16.3 per cent year-on-year as of late November 2024

FREED, the country’s first retail debt relief platform, uses technology to assist individuals in their debt challenges. It has an active base of 8,000-10,000 customers and around Rs 450-500 crore in debt enrolled. In a telephone interview, RITESH SRIVASTAVA, founder of FREED, spoke with Raghu Mohan on why the stress in retail credit is increasing. Edited excerpts: 

How serious is the stress in retail credit, especially in the unsecured segment? 

There are forecasts that slippages are going to get elevated, and will remain so for three-four quarters. With the RBI’s (Reserve Bank of India) intervention by way of risk weighting, retail credit growth has slowed down to around 16.3 per cent year-on-year as of late November 2024: A drop of 2.4 per cent. Now, private banks have been writing off (loans), but if we were not to exclude this from the denominator, the numbers are scary. Again, this moderation in growth largely stems from a slowdown in vehicle and home loans. So, while the baseline growth may have slowed down, personal loans and credit card balances are still growing. 

And what led to the credit bridge in the first place? 

It can be attributed to the easy availability of credit coupled with a lot of vulnerable borrowers overleveraging. Then, financial inclusion as an agenda: Let's try to serve the underserved. In retail, the spreads are also better. Plus, the rise of aspiration, and the fact that consumption has to grow for the economy to reach GDP targets. The dark side in this is the rising defaults in consumption loans we are seeing now. It poses a systemic risk for the broader economy. With these cracks widening, I think there is a need for swift and decisive action to prevent the situation from becoming a full-blown crisis. 

Can you give us a sense of the sign-ups on your platform? 

We are seeing primarily middle-income individuals with an income of Rs 35,000-45,000, aged between 27 and 36 years, largely salaried with almost 10 per cent of them being self-employed. They are very overleveraged with extremely high debt-to-income ratios; and are facing financial strain due to job loss, pay cuts, and medical emergencies. We're hearing the news of Meta laying off five per cent of their staff, Microsoft seven-eight per cent. These are companies that get talked about, but then you also have small businesses laying off employees as well. This adds to the stress, and affects the debt-servicing ratio of many of these individuals who may have taken loans, overestimated their future incomes and are suddenly feeling the squeeze. 

How do the numbers look year-on-year?

  We have grown by almost 30-40 per cent as far as the assets under management that get on-boarded on the platform. Right now, we have an active base of 8,000-10,000 customers on the platform with around Rs 450-500 crore in debt enrolled. It’s a dynamic number because as their debts are resolved, they get out of the platform. If I were to compare on a calendar-year basis, we have grown to roughly Rs 320-330 crore from Rs 240 crore. 

Do you think enough is being done to educate customers?

  There's a lot of affordability misconceptions among borrowers. They overestimate the ability to service loans even as there is a clear culture shift towards consumerism. Live today, worry about today. The average 25-30-year-olds are more comfortable taking risks. Of course, digital lending has worsened the problem with different forms of embedded finance. Everything is available on pay-later terms. I think more needs to be done from a prevention, care and cure perspective. It's largely about financial literacy, incorporating financial education into the curriculum at colleges and schools. Nobody talks about it. Even the best of the B-schools are not teaching you on personal finance – on how to start budgeting, and how much to save. 

I'm not talking about the investment bandwagon that everybody is on. I am on basic budgeting. I think enhanced transparency in terms of APRs (annual percentage rate), early prepayment, penalties will help. And, of course, public awareness campaigns to educate consumers on how not to overleverage themselves. In this area, as much as what the regulator has done, there is a need for some private entities as well. We at FREED try to do that. But more needs to be done around financial education. 

Your views on the lack of an advocacy forum for customers

  We are a member of the Fintech Association for Consumer Empowerment. They are in the very early stages of driving agendas, which are largely about empowering borrowers with education: On financial literacy, awareness about creditworthiness and responsible borrowing. If you look at the US, you have the Fair Debt Collection Practices Act. The entire lending ecosystem has to comply with collection guidelines. Then you have the Consumer Financial Protection Bureau. There has to be a government or a quasi-government body which will work solely for consumer protection out here. Of course, you do have the RBI’s Ombudsman scheme where borrowers can escalate matters, but how many consumers are even aware of it? 

Lastly, what is your view on the APR on credit cards? Given that the Supreme Court has overruled the National Consumer Disputes Redressal Commission's stance of 2008, which placed a 30 per cent cap on late credit card payments. 

If you look at an APR on credit cards, in India, it is as high as 48 per cent? In the US, you are capped out at 29 per cent. I mean, if you are getting a card which is at the entry level because of your poor credit score, the maximum interest rate that can be charged is 29 per cent. Not to mention that in the US, the APR (on cards) starts at 9-10 per cent for prime borrowers. In India, the creme de la creme card starts with a 42 per cent APR, and can go up to 48 per cent APR as well.