With two major jolts in March — the lockdown and the RBI moratorium on loan repayments, India’s fintech ecosystem has had pretty dreary one-and-a-half months. But while several lending startups laid off employees and cut salaries to tide through the crisis, Sachin Bansal has launched the first Navi app with a foray consumer lending.
Flipkart cofounder has been in the news for the past year for Navi Technologies and he has already invested thousands of crores and made acquisitions with the goal of creating a fully digital bank to change the status quo. The launch of the Navi app which offers personal loans had been much awaited, but the timing raises some questions.
Bansal and Ankit Agarwal registered BAC Acquisitions in Bengaluru in December 2018, and the company was later rebranded to Navi. The company helps develop platforms to optimise business automation and computerisation of processes across sectors.
Bansal is said to have poured in over $450 Mn into Navi. The company also acquired:
- Mumbai-based insurance company DHFL General Insurance from Kapil Wadhawan-led financial services group Wadhawan Group Capital (WGC) for INR 100 Cr ($14 Mn)
- Chaitanya Rural Intermediation Development Services Private Limited (CRIDS) in September 2019
Bansal had said that the fact that CRIDS provides financial access to people who don’t have access to other formal finance impressed him the most. And carrying forward this vision, Navi was looking at disrupting the banking sector. Bansal said that he had applied for a full banking license for Navi as well.
The Navi app, which is still in beta, is a consumer lending app which offers a collateral-free loan with a higher limit of INR 2 Lakh for individuals with a monthly income as low as INR 10K. Any Indian adult can apply for a loan by feeding in basic details such as PAN and Aadhaar number. For repayment, Navi provides a flexible EMI option for the consumers. The development was first reported by Entrackr.
Navi Joins Tightly-Contested Lending Market
The company is targeting salaried individuals and competes with the likes of Capital Float, Kissht, Kaarva, LoanTap, EarlySalary, Credy, Qbera, EarnWealth, etc. Along with being competition to these players, it is to be noted that digital lending companies are facing challenges in their business modes and approach due to loan defaults and RBI’s moratorium to the public.
After confirming recent layoffs and pay cuts, lending players IndiaLends and CreditMate had said that the segment will face issues with revenue. Creditmate CEO Jonathan Bill said that considering RBI moratorium on loans/EMIs, the company expects its revenue to reduce in the next few months as customers prefer to defer loan repayments as allowed by RBI. IndiaLends chief Gaurav Chopra said that due to the pandemic, almost all of its lending partners have slowed down their lending activities and hence, it has directly impacted the business and revenue is almost nil.
At the same time, individual borrowers have seen their borrowing limit shrink with loss of jobs and pay cuts. Multiple lending players Inc42 talked to said that the launch doesn’t create any specific pressure as India’s lending market is too big and given the demand-supply gap, there is space for multiple companies to play.
Niche products are being developed in conjunction with merchants, utilising transactions histories and other available data points to evaluate customer creditworthiness.
In the recent past, plenty of lending tech companies have found a base in India. As per DataLabs by Inc42, the credit demand in India is projected to be worth $1.41 Tn by 2022. The estimated growth rate in credit demand is 3.73% between FY17 and FY22. This makes lending a big opportunity for fintech startups, but with so many players in the market, the credit model is a crucial differentiation.
Did Navi Get The Launch Timing Right?
As expectations of customers evolve, fintech companies have to come up with unique models to cater to the untapped and underserved audiences. But with increasing NPAs for existing lenders in the Covid-19 pandemic, Navi’s launch may raise concerns for them as while they look at the recovery of dues and repayments after the lockdown ends, Navi can focus on giving out new loans and build its loan book.
Given how credit lines have been dried up and repayments have been delayed, the key learning from Covid-19 for digital lenders would be that consumption can be a fickle partner and rapidly building up loan books without a plan for lean months can lead to disastrous results.
One of the digital lending players, who wished to remain anonymous, said, “I don’t think there will be a demand shortage from consumers for loans. There are always consumption-based use cases. Discretionary consumption, however, may take a hit in the short term.”