Personal loans: Small personal loans increased 4.5 times in 2 years | India business news

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MUMBAI: staff with a small ticket Loans (STPL), which were the scourge of the crisis in the same segment ten years ago, are back. This time around, they’re powered by software used by financial firms and fintechs to approve and disburse low-value loans based on analytics.
The share of small loans in personal loans disbursed over the past two years has increased almost fivefold. In the 2017-18 period, these loans accounted for only 12.9% of personal loans disbursed, which rose to nearly 60% by March 2020.
Although there has been some moderation since then and other personal loans are growing faster, small loans still account for half of new disbursements.

“Retail credit not a problem yet”
Within the personal loan segment, loans below 50,000 rupees are considered small-ticket personal loans (STPL) and it is this segment that has driven the volume with growth of up to 162% in 2019-20 in terms of the number of loans disbursed .
The total size of the STPL lending business is estimated at around Rs.12,000 billion, after seeing a 77% increase in value last fiscal year when several app-based lenders hit the market.
Incidentally, the greatest stress among borrowers was experienced by small-ticket loans, in which 9.4% of the loans came under stress in terms of value.

Financial firms and neo-age lenders are increasingly targeting young, low-income, digitally savvy customers who have low and short-term credit needs but have either no or limited credit history, according to a report by credit bureau CRIF High Mark.
But the high growth and seedy recovery practices that take advantage of personal data inherited from some app-based lenders forced it RBI crack down on them in June, making it difficult for banks or NBFCs to lend through digital platform providers.
A feature of payday loans (payback on salary credit) is the extremely high interest rate that fluctuates around 15% per month. This enables lenders to act even in the event of defaults of around 10%.
A senior executive at a major private bank said their defaults in the STPL segment were in the low single digits. Although the bank used software to provide small-ticket loans, these were aimed at their existing customers who have a track record of cash flows. Unlike banks, credit apps perform analysis on information obtained from bank statements sent by borrowers.
“As the portfolio grows, the average ticket size has steadily decreased over the past two years, down 18% year over year by March 2020. As of August 2020, the average size has increased by 5% compared to March 2020, ”says the CRIF High Mark Report.
Rating agencies say lenders have not yet faced problems with retail lending. According to ICRA, the collection efficiency (repayments) of the loans tracked by the rating agency remained stable in October 2020. However, current collections efficiency is still below pre-lockdown levels and is 81-95% in retail loans.
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