Covid financial crisis hits easy lending

This has been, in part, fueled by the proliferation of numerous online lending platforms. Given the quick turnaround of these platforms, combined with the limited amount of documents required, they have become a favorite, especially among students and young professionals.

All of that seems to be changing since the covid-19 pandemic hit, with most people being forced to cut back on discretionary spending. “Digital lending is one of the hardest hit sectors, both on the demand and supply side,” said Vivek Belgavi, Partner and Lead, Fintech, PwC India, a consultancy firm.

Could this be a nail in the coffin for easy lending, or will the financial crisis just mean more borrowing in the future?

More cautious borrowers

There was a time when it was impossible to borrow to fund lifestyle expenses. But over the past decade, Indians have borrowed more. Not only has the number of borrowers increased, but the amount of loans has also skyrocketed. Millennials are particularly prone to financing their lifestyles by taking out short-term loans or using their credit cards. With the advent of easy loans offered by digital lending platforms, this trend has seen another surge.

Discretionary spending, however, came to a screeching halt for many after the pandemic hit. Accordingly, the loans were affected. “Consumer lending will be hit harder in the short to medium term as discretionary spending on electronics, apparel and travel would be hurt by wage cuts, job losses and fear of prolonged uncertainty,” said Belgavi. According to Kotak Institutional Equities analysis, as of March 20, 2020, applications for personal credit and unsecured consumer loans fell 10-29% week-over-week, indicating a sharp decline in demand, he added.

While demand for loans taken out for discretionary spending has taken a hit, not all loans have. According to Bala Parthasarathy, co-founder and CEO of MoneyTap, an online lending platform, “the financing of consumer durables, where people take EMIs to buy the latest smartphone or go on vacation, has seen a sharp decline in Requirement. But other areas such as education and medical emergencies have seen an uptick,” he said.

Lenders tighten standards

It’s not just borrowers who have become cautious. Lenders have also had to tighten their standards to stay on the safe side. “In light of layoffs and pay cuts, lenders have issued statements that non-performing assets (NPAs) may increase and they may become more conservative in lending in the post-covid world. At the same time, the demand for credit continues to grow even though people are reluctant to initiate physical contact. So while the business may become more conservative, lenders are increasingly focusing on digital to meet this demand,” said Adhil Shetty, CEO of BankBazaar.

Madhusudan Ekambaram, CEO of KreditBee, an instant personal loan app and credit platform, agrees. “One of the biggest changes to expect post covid is the tightening of credit reporting among digital platforms. liquidity, which would lead to market consolidation. But it’s also a huge opportunity for digital lending platforms, as many consumers would switch from offline to online applications,” he said.

Offer an alternative

While the near-term outlook looks bleak, according to Ekambaram, fintech lending apps have provided an alternative for customers that banks haven’t traditionally lent to, and that trend is likely to continue, if not strengthen. “The opportunity would be much greater right now, as banks would now be even more conservative in lending, which would open up new opportunities for digital lending platforms,” ​​he said.

In fact, some are of the view that the drastic change wrought by covid-19 will work to the benefit of the digital lending industry. “The entire banking ecosystem and the way customers interact with financial organizations has completely changed as a result of covid-19. In the new normal period, we will see a substantial decline in the conventional method of banking,” Parthasarathy said.

Digital lending companies, with the right government pressure, could fill the void that will be created as new customer needs and habits evolve in the post-covid era, he added.

The path to follow

So what lies ahead for easy loans?

According to Ekambaram, the macroeconomic slowdown has caused demand to fall, but it will eventually recover. “In the short term, demand generation for loans among creditworthy customers would be much lower than in the pre-covid period. But in the medium to long term, people should venture out as usual, so we expect demand to return to normal levels. However, it could take six to eight months,” he said.

But according to Bhavesh Gupta, CEO of Clix Capital, an NBFC, while the global digital lending space may see development, some of the platforms may see their demise.

“Some online lending platforms weren’t NBFCs, they were working with them because they didn’t have the digital technologies. The post-covid environment will force some old school banks and NBFCs to get their own online platforms because they are now an integral part of the lending business,” Gupta said.

While this may not be the end of easy loans and lending platforms, the demand for consumer loans has certainly declined for now. With people becoming reluctant to borrow for luxury goods given income insecurity in the wake of the pandemic, as well as the need for higher standards from lenders, the industry could struggle to regain the footprint she had established before covid-19 hit.

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