Fintech lenders are struggling to raise low-cost debt, even as demand for credit is gradually reviving.
The reason: banks have increased risk premiums due to stress on their books amid the Covid-19 pandemic and a lack of clarity over whether a moratorium on loans would be extended.
Capital Float, Lendingkart, Zest Money and Indifi are among the top fintech lenders in the country. Paytm, PhonePe, Razorpay and Mobikwik also offer credit to customers in partnership with banks.
The country’s growing fintech lending ecosystem is fragmented – both in terms of business models and how they access capital.
For most fintech companies, term loans from banks and equity capital from investors are the two major sources of capital.
However, both these avenues have been hit because of lockdowns, industry players said. They said partner banks have increased loan rates by more than 200 basis points, or 2 percentage points, since April, factoring the pandemic-induced risk into their pricing. One basis point is 0.01 percentage points.
Moreover, loan disbursements under co-lending partnerships, where the risk is shared between banks and non-banks, have also slowed in the unsecured personal loan as well as small business loan categories, they said.
“The deals which were happening at 13% in March have gone up to 15%; some deals are also happening at 17%,” the chief executive of a consumer lending fintech said, asking not to be named.
Rates for lending marketplaces have increased by nearly 400 bps, or 4 percentage points, since March, he added.
“Banks are also getting more comfortable lending short-term,” said Gaurav Hinduja, co-founder and MD of Capital Float. “Companies are moving towards short-term debt instruments such as non-convertible debentures (NCDs) and commercial papers (CPs) to raise debt.”
Capital Float, which lends to both consumers as well as small businesses, has raised nearly Rs 100 crore through a mix of NCDs and CPs over the last six weeks, Hinduja said.
Its monthly disbursements, which were at Rs 150 crore before March, slowed to Rs 50 crore in June, even amid early signs of green shoots, he added.
EarlySalary – another digital lender in the short-term personal loan segment — said recovery in disbursements for most fintech non-banks may only happen next year.
“From November (2019) to March, we were playing the T20 World Cup in terms of growth rate,” said Akshay Mehrotra, CEO of EarlySalary. “Those targets have now sobered down and a full revival of the balance sheet by November (2020) looks far-fetched for most companies.”
Most fintech players were already paying high premiums on credit since September 2018 following the collapse of Infrastructure Leasing and Financial Services (IL&FS), which created a liquidity squeeze.
Bankers said they were going slow on disbursements with partner non-banks, as there is no clarity on whether the Reserve Bank of India will extend a moratorium on repayments.
“The industry is a bit perplexed at the unique situation where, despite rising inflation, falling bank rates and tide of liquidity available with the banking system, the cost of credit is not showing any signs of easing,” said Anurag Jain, CEO of KredX, a digital lender.
Fintech companies may not be able to pass on the increase in borrowing costs to customers, since they may lose out to bigger non-banks and banks offering low-cost or no-cost equated monthly instalment products.
There could also be a wave of consolidations in the sector if margins remain tight amid a lack of new disbursements, according to industry experts.
The liquidity schemes announced by the central bank to aid non-banks, too, have not brought relief for small lenders due to credit rating hurdles.
“The interventions by the government… to infuse liquidity has provided only limited relief to small and medium-sized non-banks as most of the money has flowed into a small number of large non-banking finance companies, which are highly rated,” the Finance Industry Development Council (FIDC) wrote in a letter to the finance ministry last week.
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