The Covid pandemic has forced people of all age groups to rely on digital platforms for various activities. Whether it is banking or buying groceries, more and more people are gradually turning to online fashions. Although there has been a surge in various banking activities, digital lending applications have grown in importance. While digital lending is still at an incipient stage for banks compared to physical modes, digital lending has grown significantly for non-bank financial corporations (NBFCs) in 2020, following the Covid outbreak, according to a recent report by the Reserve Bank of India (RBI).
NBFC – Preferred choice for digital loans
The percentage of the total number of loans sanctioned by NBFCs through digital lending platforms has increased by over 55% between 2018 and 2020. Although there has been a significant increase in the number between 2018 and 2019, as Covid has started to spread at the end of 2019, the number soared in 2020.
“NBFCs take a more flexible approach to disbursing / processing a loan. Banks have a physical presence and operate on the traditional model, while NBFCs operate on a hybrid model, which makes their journey a bit smoother, ”says Mahesh Shukla, Founder and CEO of PayMe India, a digital lending platform. .
The percentage of the total number of online loans sanctioned by NBFCs declined slightly in late 2020, but increased slightly for banks. After the
Covid epidemic, there has been an alarming increase in the number of online banking frauds in India. This could explain the decrease in the number of loans disbursed by NBFCs digitally and the increase for banks, although other factors also apply.
“At the moment, there are a few lenders that are not recognized or regulated, due to which a few people have faced service issues. Perhaps this is the reason why some people turned to banks, ”says Shukla.
Although NBFCs and banks lend, they do so in different settings. “The NBFC has taken a cautious approach due to the uncertainties. They have a higher cost of borrowing than banks and therefore need to be careful about cash flow. In addition, several NBFCs have seen an increase in non-performing assets (NPAs) during Covid, resulting in a mismatch of cash and assets and liabilities, ”said Sameer Aggarwal, Founder and CEO of Revfin, a platform digital loan.
In 2017, there was not much difference between banks (0.31%) and NBFCs (0.55%) in terms of share in the total loan amount disbursed digitally. However, the NBFCs lagged behind in terms of the number of loans, with a share of 0.68 percent compared to 1.43 percent for the banks, the report said. Things took a turn when Covid spread and the NBFC made great strides in digital lending. “NBFCs have a deeper specialization in customer segments and geographies. They use digital applications for sourcing, which gives them alternative sourcing options in their areas of expertise. In addition, NBFCs have a simpler and faster decision-making process, which is convenient for digital lenders, ”says Aggarwal.
The majority of loans disbursed digitally by NBFCs are personal loans followed by the “other” category, which primarily includes consumer credit loans.
Preferred banks for long term loans
NBFCs have a higher share in the number of digitally disbursed loans, but when it comes to longer term loans, people seem to prefer banks through digital lending apps.
For banks, around 87% of the amount disbursed (Rs 0.98 lakh crore) has a term of more than one year. For NBFCs, only 23% of loans, amounting to Rs 0.05 lakh crore, fall into this bucket. On the contrary, loans of less than 30 days have a maximum share in the case of NBFCs (37.5 percent, for a total of Rs 0.9 lakh crore) against only 0.7 percent for banks. (for an amount of Rs 0.007 lakh crore). ), indicates the report.
“Banks have the ability to raise long-term, low-cost capital through deposits and other means. This allows them to lend more easily over a longer period of time. Most NBFCs are able to raise short and medium term debt only. Longer-term debt can be very costly for NBFCs, ”Aggarwal explains.
Beware of fraudulent apps
As more people take out loans digitally, RBI has warned its customers against fraudulent apps. The report mentions that there were around 1,100 loaner apps available to Indian Android users in more than 80 app stores (January 1, 2021 to February 28, 2021).
“There is a need to facilitate the identification of bad actors in (the) digital lending space by implementing agencies in a timely and less frictional manner. Payment system regulation should fine-tune the ‘travel rules’ for one-time password (OTP) narration and SMS / email alerts sent to users as part of completing payment transactions through n ‘Any digital mode under the Payment and Settlement Systems Act (PSS), ”the report said. “Travel rules” include information that must be collected, maintained and included in every funds transfer transaction initiated by a financial institution on behalf of a client, and that must “travel” (be passed on) to each financial institution. successive chain.