RBI Flags High Delinquency Levels For Fintech Lenders In Below INR 50K Loan Category

The Reserve Bank of India has flagged the high levels of delinquency being seen by fintech lenders for small loans below INR 50,000.

In its Financial Stability Report, the central bank said that its decision to increase the risk weight for certain segments of consumer credit, which came as a major blow to several fintech players in the digital lending space, including Paytm, reduced the growth rate in overall consumer credit.

“Even as inquiry volumes remain robust, the impact of increase in risk weights on certain segments of consumer credit pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards,” the report said. 

The report showed that the growth rate in personal loans declined to 30% as of March 2024 from 31% in the year-ago period.

However, the RBI said there are a few concerns in the consumer credit segment that require close monitoring, including the unsecured lending category. The delinquency levels among borrowers with personal loans below INR 50,000 remain high, the central bank said.

“In particular, NBFC-fintech lenders, which have the highest share in sanctioned and outstanding amounts, also have the second-highest delinquency levels, only below that of small finance banks,” RBI stated.

Even the vintage delinquency, which is a measure of slippage, remains relatively high in personal loans at 8.2%, said the RBI.

For the uninitiated, in lending, delinquent accounts are those where repayment haven’t been done by the due date. 

Meanwhile, vintage delinquency is defined as the percentage of accounts that have anytime become delinquent (90 days or more past due) within 12 months of origination. It is a commonly used industry metric to assess the efficiency of the loan underwriting process.

Further, the central bank in its report said, “Little more than a half of the borrowers in this segment (personal loans) 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.”

It is pertinent to note that a number of fintech startups like InCred, slice and KreditBee offer unsecured personal loans to consumers. On Wednesday, Inc42 exclusively reported that slice is piloting a new loan product under which it will offer users personal loans of up to INR 5 Lakh for a tenure of up to 60 months.

Meanwhile, the central bank said that delinquency levels in other segments like housing loans, property loans, and auto loans remained low in FY24.

Amid the rapid growth in unsecured loans, the RBI, in November last year, increased the risk weightage for outstanding and new unsecured consumer credit exposure of commercial banks as well as NBFCs by 25 percentage points to 125% from 100% earlier. This pushed up the lending costs for unsecured consumer loans.

Following the central bank’s decision, fintech major Paytm decided to “go slow” on sub-INR 50,000 loans and focus on high-ticket personal and commercial loans. Earlier this year, Paytm paused its small personal loans business including the Postpaid portfolio.