In the first impact of the higher risk weights for unsecured consumer loans, rolled out by the RBI last month, fintechs are going slower on small ticket loans which is expected to lead to a fall in the pace of customer acquisition.

Banks or larger NBFCs have so far said that they will be able to absorb or pass on the impact of the higher risk weights. However, fintechs and smaller NBFCs, which are the largest lenders in the small ticket segment, are feeling the capital crunch as their borrowing costs rise and traditional lenders become more cautious about lending to them.

“Whenever there is an issue in the industry, the smaller players are impacted more. This includes smaller NBFCs too, which carry a higher risk of being over leveraged. So, caution is definitely the need of the hour but it’s a phase. Lenders will become less aggressive on acquiring new customers and focus on the ones they’ve already acquired, and there will be a slowdown in customer acquisition,” said Anurag Jain, Founder KredX and Executive Committee member of Digital Lenders Association of India (DLAI).

Recently, InCred Finance said that small ticket personal loans (STPL) of less than ₹25,000 have been the fastest growing segment of personal loans, with their volumes increasing around four-fold in the past two years. TransUnion CIBIL had in July said that small ticket loans of less than ₹50,000 comprise 2 per cent of personal loans and 0.3 per cent of retail loans at an industry level.

Paytm’s strategy

On December 6, Paytm said it will reduce the less than ₹50,000 loan distribution “on the back of recent macro development and regulatory guidance” and in consultation with its lending partners. Instead, it will expand distribution of higher ticket loans of ₹3-7 lakh for lower risk and high credit-worthy consumers and merchants. Portfolio origination in the less than ₹50,000 segment is prominently postpaid loans, it said.

Motilal Oswal Securities said Paytm’s strategy to move away from small ticket size BNPL loans will affect overall loan originations as the segment forms over 50 per cent of disbursements. “The company indicated the monthly postpaid loan sourcing run rate to moderate by 50 per cent from ₹3,000 crore to ₹1,500 crore,” it said, adding that the monthly disbursement run rate is expected to decline to around ₹4,500 crore from ₹6,000 crore. The brokerage firm has cut Paytm’s FY24 and FY25 disbursement estimates by 15-18 per cent.  

Postpaid loans are usually short-term loans which are given post bill generation. These, among other loan segments such as BNPL and PoS (point-of-sale) finance tend to be higher risk as the time and scope for credit underwriting is lower as compared to personal or pre-approved loans, industry players said.

In addition, the inclusion of new-to-credit (NTC) or new-to-bank customers (NTC) usually happens with very small ticket sizes to ascertain their credit worthiness, Jain said adding that the best way to do this is by covering a larger number of people rather than concentrating on a few large ticket loans. “This is why we see a large number of transactions happening. So we’ll see some reduction in the lines for these kind of loans but over a period of time things will stabilise.”

The impact then, is expected to be felt more in terms of the number of disbursements and loan originations rather than the portfolio size, according to fintech players.

“We see a short-term impact on the access of credit to the underserved communities since a large share of consumers who were first time credit users subscribed to small ticket loans. So, the move by lenders to curb supply of small ticket loans will surely result in reducing the pace of penetration,” said Aditya Gupta, Founder and CEO, Credilio.

SBI Research had earlier said that the share of loans impacted (about ₹14.8-lakh crore) due to higher risk weights was around 9.8 per cent of total outstanding loans (₹1,51.5-lakh crore) as of September 2023. It pegged the quantum of impacted personal loans at 31 per cent of the total portfolio of ₹48.3-lakh crore.