The moratorium brought immediate relief to millions of consumers and businesses, but it was bought at the expense of lenders who had to agree to not get payments from borrowers
Taking a broad perspective, lending startup founders estimate that around 5%-20% of their outstanding books are under moratorium and hence the impact will be huge in terms of NPA
Calling out the implementation issues, some startups suggested that the moratorium should have been mandatory for all lenders instead of an opt-in system which has created avoidable issues
India’s digital lending sector is currently in a reset mode as the contracting GDP, moratorium, & Covid-19 has forced companies to adopt digital, review credit models & more. This playbook takes a deep dive into the challenges and new pathways adopted by digital lending startups for survival and scale! ‘One man’s meat is another man’s poison’According to the Centre for Monitoring Indian Economy, 19 Mn salaried people have lost their jobs since April.The bigger question is, will the moratorium send digital lenders to the mortuary?“Do you recall the Andhra Pradesh microfinance crisis? Once you told people didn’t pay, it became hard to get them back into the payment habit because they have not saved any money. They did not have any money. So, those became serious NPAs and a lot of microfinance institutions were severely impaired after that. The longer we tell people not to pay, the harder it will become for banks to collect anything on those loans,” former RBI governor Raghuram Rajan said.There was not enough incentive for the borrowers to avoid paying the small-ticket loans where the EMI was averaging at around INR 5,000. However, consumers found a lot of incentives in delaying the large ticket loans like home loans, where the EMI was extending up to like INR 15,000 to INR 50,000,” Madhusudan Ekambaram, CEO, KreditBee said.Uday Somayajula, cofounder of ePayLater, which offers 14-days credit to kirana stores, told Inc42“After the initial slowdown for the two months of April and May, we started ramping up again. However, amid the moratorium introduced by the RBI, we wanted to test the waters before ramping up to speed. So we took a calibrated approach towards scaling up and starting from June we’ve been able to scale up steadily, seeing how the repayments are happening etc.”Startups are clear on one thing: the moratorium’s intention was good, but the execution, as always, could have been better.“Such a moratorium was never implemented before, lenders who were already struggling to figure out what to do during lockdown were now trying to operationalise the instructions laid out by the regulator.” – Gaurav Aggarwal, business head, Paisabazaar“The rate at which the banks could borrow money from the government to extend to the NBFCs hence have come very handy to plug the gap between what the smaller NBFCs had to continue but were not able to avail the same from their own lenders. This has definitely bettered the situation,” Jhalaria said.“While the moratorium on loans was a temporary solution in the context of the lockdown, the resolution framework is expected to give durable relief to borrowers facing Covid related stress,” said RBI governor Shaktikanta Das on August 27, 2020.