Small and safe? Banks, fintech loans under Rs 50,000 on RBI radar

Scrutiny strengthened after regulated entities were in November asked to review exposure limits for consumer credit

The Reserve Bank of India (RBI) is scrutinising loans with a ticket size of up to Rs 50,000 on the books of banks and fintech lenders, stepping up its monitoring after calling for greater care in consumer credit.

A majority of consumers in this segment service three “live” loans and it is suspected this could be an indication of evergreening with the possibility of diversion into the capital markets.

The development should be seen in the context of the regulator’s move last November when it asked regulated entities to review their exposure limits for consumer credit and put in place board-approved limits for various sub-segments, specifically unsecured consumer credit exposures, by February 29, 2024.

While no sizing study has been done on this segment of loans residing in the books of banks and non-banking financial companies (NBFCs), data from the Fintech Association for Consumer Empowerment show runaway growth in such offerings given by new-age fintech lenders. In FY24, loans given out by fintechs topped a whopping Rs 146,517 crore, up by 49 per cent year-on-year and spread over 10.19 million accounts (up 35 per cent).

In the specific case of fintech lenders, sources said that shorter tenures on consumer credit – those ranging 3-4 months to a year – are being looked into. These are mostly given to below prime and new-to-credit borrowers with credit bureau scores ranging between 500 to 700.

The RBI’s Financial Stability Report in June 2024 had called attention to concerns in the consumer credit segment.

First, delinquency levels among borrowers with NBFC-fintech lenders have the highest share in sanctioned and outstanding amounts, and the second highest delinquency levels. Second, vintage delinquency, which is a measure of slippage, remains relatively high in personal loans at 8.2 per cent. Vintage delinquency is defined as the percentage of accounts that have anytime become delinquent within 12 months of origination. Third, little more than a half of the borrowers in this segment have three live loans at the time of origination and more than one-third of the borrowers have availed more than three loans in the last six months. Fourth, 7.3 per cent of customers availing a personal loan below Rs 50,000 had at least one overdue personal loan.