Prudent lending from indebted banks is a boon to India’s growing digital lending industry
Considering the need for faster, more accessible and easier credit in the economy, it is only right that the digital banking or credit industry is growing. Considering the level of convenience offered by the online credit industry in India, it is quite understandable that the industry is growing rapidly.
In addition to the convenience and faster service, such services are also offered at a low price and prove to be very economical for the users. Paying an interest rate of 2.25% works quite well for users, especially when a comparison is drawn between the online lending industry and the traditional banking industry.
According to reports, many Indians are turning significantly to the booming online lending industry. A major reason for this is the immediate and significant need for liquidity in the economy due to the financial havoc that the pandemic has wrought on individuals. According to a national survey, more than 1,200 digital lending start-ups have sprung up in India. The dynamism of the startup culture is mainly due to the profitability and the booming share of the online credit market in India.
Factors Fueling the Rise of Online Credit System in India
Various factors have contributed to the boom in India’s credit industry. First of all, the increasing possession of smartphones in India has led to rapid digitization not only in urban areas but also in rural areas of India. Second, the collapse of the archaic traditional banking system contributed to such a rise. This is due to the low penetration of credit cards in India which has had less impact on individuals who migrate to the online credit industry. If the statistics are to be taken a closer look, there are around 120 million employed people in India who do not actually have credit cards in the economy. This report was published by Inc42.
The policies of the government of Prime Minister Narendra Modi for a vigorous push towards a “digital India” have contributed to the growth of the online credit industry in India. This is not necessarily such an attractive situation for Indian banks which are heavily burdened with high loan losses. This is in fact one of the reasons which is contributing to the increase in popularity of the online credit industry.
With high NPA loans plaguing the powerful banking industry, banks have remained cautious about lending invariably. Given the country’s already crippled financial situation, granting loans can be risky. So, considering the point of view, easy credit has collapsed in recent years. This has effectively opened up different avenues for online credit start-ups. The rise of the same is also due to the boom in online transactions in India which materialized during the pandemic.
According to Boston Consulting Group, the Indian digital retail lending market is expected to reach $ 1,000 billion by fiscal year 2024. The market will reach the value of $ 1,000 billion in terms of total disbursements in the country.
Considering all of the aforementioned circumstances, things have effectively mellowed out for lenders who are desperate to build consumer bases for their startups in the economy.
According to various analysts and experts, India is currently well positioned to be the leader in terms of credit recovery. According to them, this has been accelerated by the pandemic and strong fundamentals driving demand and consumption in the economy.
It should be noted that given the tremendous momentum of online lending platforms, the industry has indeed caught the attention of technology companies. These tech companies include companies like Xiaomi and Facebook that are looking for opportunities to grow in the industry. According to recent trends and reports, regional, international and local conglomerates have been trying effectively and forcefully to gain a foothold in the niche market.
Among all the other companies interested in the sector, Facebook made its entry last month by partnering with the online lender Indifi. The association that was formed began to launch a small business lending initiative in India. The small loans initiative in India has effectively given businesses the freedom to advertise on social media platforms for marketing purposes. The range of the loan had extended approximately from 5 lakh to 5 million.
In addition to Facebook, Chinese electronics maker Xiaomi is also keenly interested in venturing into the online lending industry in India. He strongly plans to enter the credit card and loan business in India through various successful partnerships with online lenders and banks and online lenders.
According to Utkarsh Sinha, managing director of Mumbai-based Bexley Advisors, the online lending industry has, in many ways, served as an extension of the banking industry. Through his efforts, he categorically regularized the informal credit infrastructure in the country. This is due to the extension of lending to non-bank sectors which have been marginalized in India’s growth history.
However, here it should be noted that all is not as rosy as it seems. Cheaper and flexible digital loans come with additional risks. Since the digital lending space offers easy credit, background checks are usually not done extensively. This can actually lead to the formation of a credit bubble in the economy which can wreak havoc once burst. To sum up the subject, it can be said that the risk of digital loan is unsecured which is very risky.
So, what will be the future of space lending in India is very controversial.
Edited by Sanjana Simlai.
