Digital Lending – Need of the hour

Digital Lending

Credit has always been the backbone of Indian economy, be it the farmer taking a loan from a local zamindar or the affluent reaching out to the various BFSI firms to fund their growth and prosperity. However, in a post pandemic era , this exchange of funds doesn’t come without its fair share of troubles. There is a need for more institutions – nationalized or otherwise – to be in a position to sanction easy credits to a massive population severely impacted by a global pandemic. 

Furthermore, access to credit is limited in India and it becomes imperative that consumers have access to and choice of products that suit their needs . Therein comes digital lending. 

Digital channels have started making access to finance, especially credit, as easy as searching for something on google.

IIn the recent past, the Reserve Bank of India (RBI) has cautioned individuals and small businesses against falling prey to the growing number of unauthorised digital lending platforms and mobile applications on promises of getting loans in a quick and hassle-free manner

The digital innovation India has made so far is here to stay. It needs adoption into the commercial application to deepen the financial inclusion net

The conventional finance industry benefits from quicker and strong decision making, operational efficiency, and better quality for consumer experience. Financial services have traditionally been a distribution-led business with a dominant physical presence. The high cost of fixed assets in traditional banking and other financial services sectors and licensing norms make the entry into the sector a tough one. 

Financial embracement has been the focus of the government’s policies in building a strong economy that will bring economic development and offer respectable livelihood to our citizens. This basic right to dignity needs to be improved by bringing the sustainable distribution of finance to every common man in need.

Financial technology players have been focused on bringing transformed finance products to the market. They have been working with financial services brands for the past few years, and the experience has paved the way for a newer segment of consumers to benefit from access to finance. 

Nirmala Sitharaman has presented new norms in regard to Asset Reconstruction Companies (ARCs), which was proposed to recover the Non-Performing Assets (NPAs). With the possibility of rise in NPAs, the government has proposed to set up a ‘bad bank’, which will be ARC in nature, but its definition has not yet been spelt out.

Multiple reports from rating agencies and RBI concur that nationalised banks are facing issues with the NPAs since the last decade. According to Moneylife,  12 nationalised banks have written off  6.78 lakh crore loan in the last 8 years out of which 2.43 lakh crore loan was of ticket size more than 100 CR which then contributes to around 43% of the write off size . This also indicates that these banks have a higher book size of corporate loans rather than consumer loans.

It has been observed, that due to lack of technology they are unable to serve the mass populace and MSME sector –  which often look for convenience and shorter time of disbursement due to urgent needs. Lack of necessary technology and infrastructural support coupled with growing pressure to increase the size of their loan books compel them take the route of providing high ticket size loans to corporates which are higher on risk and lower on ROI.

Let’s take the example of India’s biggest private bank HDFC which has a loan book of around 11 lakh crore. Out of this,  46.7% of the loan is comprised of retail loan which is again diversified to 11 sectors like personal loan, vehicle loan, auto loan, credit card etc. This has primarily been possible due to the use of technology which has made the process from onboarding of a customer to underwriting, disbursement and collection , effectively seamless. 

Digital lending is the need of the hour, and one of the major reasons that Government nationalized banks are facing an increasing number of defaulters, is the ineffective use of technology. Every process involves intensive paperwork and documentation , which results in slower onboarding processes along with the cost of operations. Furthermore , they are not appropriately diversifying their risks which is a basic tenet of finance. Banks are lending large amounts of money to single organizations or lenders, and hence, creating bad debts.

The lending industry, along with the digital platforms needs to work with Indian Government regulators to ensure that consumers are not victimised by atrocious financial technology players. At the same time, such occasional incidents should not be an excuse for slowing down the growth of digital finance. 

At Zoop, we work towards building One platform for everyone, we encourage consumers to go digital and strengthen their belief in”highly secure, speedy, reliable and convenient digital services related to loans and credit. While the consumers benefit from our services businesses have the opportunity to tap this market and grow their digital presence. 

Zoop helps organizations with faster, safer & cost-efficient onboarding process.