Finnovate : The FinTech Lending Landscape

Executive Summary

Acuité Ratings has conducted a study on 25 companies in the FinTech lending space to understand the key trends in this sector. Starting from small ticket size Consumer and Small Business (SMB) loans, the FinTech lending space is expanding rapidly to Auto loans, Trade Finance, Gold loans and Educational loans. The sample of companies are mostly rated by Acuité and predominantly from the consumer and small business loans segment. The assets under management (AUM) for FinTech NBFCs have recorded a robust 48% CAGR over the period March 2019-March 2022 (for the identified set of companies which we believe is fairly representative of the sector). While Covid-19 had sharply impacted the disbursements during the prolonged pandemic period in FY20 and FY21, they reached a high of ₹ 24000 Cr ($3.1 Bn) during FY22, reflecting a resumption of the growth trajectory for these lenders. Since their emergence in 2014, FinTech NBFCs in India have raised about ₹ 39000 Cr ($4.9 Bn) in capital funding and ₹ 42000 Cr ($5.4 Bn) in debt funding.

The consolidated earnings profile is constrained for most of the FinTech players given the substantial upfront investments in the technology platform apart from the relatively high credit and collection costs. However, we note that the profitability metrics remains better in the personal loan segment as compared to that in SMB segment. The asset quality trends indicate moderate improvements in the GNPA levels for the consumer space as the median GNPA ratio stood at 4.25% as on March 31, 2022 against 4.85% as on March 31, 2021, although write offs have also played a role. On the other hand, the SMB segment has seen a continuous spike in the GNPA levels over the last four years as a result of the economic slowdown and the subsequent disruption from the prolonged pandemic which had a severe impact on the small businesses. The median GNPA ratio in that segment stood at 5.1% as on March 31, 2022 against 4.14% as on March 31, 2021.

Given the copious infusion of capital in the FinTech lending sector at the initial stage of evolution, the leverage indicators remain moderate for these NBFCs as compared to the median level for the overall NBFC sector. Within the sector, leverage levels for SMB players have gradually gone up in last three years from an average of 1.7x as of March 2019 to 2.6x as of March 2022. For personal loan FinTech players, the leverage remains relatively low at around 1.1x as of March 2022

While the emerging digital platforms and various technological innovations augur well for customer convenience and better financial inclusion, the road to growth and sustainability for FinTech NBFCs is still long and can be bumpy. The regulatory framework for the sector is gradually evolving with increasing demands for data privacy, transparency, and accountability. Although any regulatory uncertainty can impact the sector’s growth in the short term, well designed regulations will reduce systemic risks and facilitate a healthy development of the FinTech lending business over the longer run.

Hope you enjoy reading our report. Awaiting your feedback,

Sankar Chakraborti
Group CEO, Acuité Ratings & Research