MUMBAI: Small-ticket personal loans, which were the scourge of the crisis in the same segment a decade ago, are back. This time, they are being driven by software deployed by finance companies and fintechs to approve and disburse low-value loans based on analytics.
The share of small-ticket loans in personal loans disbursed during the last two years has jumped almost five times. During 2017-18, these loans were only 12.9% of the personal loan disbursed, which shot up close to 60% by March 2020.
Although there has been some moderation since then, with other personal loans growing faster, small-ticket loans still account for half of the fresh disbursements.
âRetail loans not a problem yetâ
Within the personal loan segment, credit of below Rs 50,000 is considered a small-ticket personal loan (STPL) and it is this segment that has been driving volumes with growth as high as 162% during 2019-20 in terms of the number of loans disbursed.
The overall size of the STPL loan business is estimated at around Rs 12,000 crore, after clocking a 77% rise in value terms during the last financial year as several app-based lenders entered the market.
Incidentally, small-ticket loans have seen the maximum stress among borrowers, with 9.4% of the loans by value coming under stress. According to a report by credit bureau CRIF High Mark, finance companies and neo-age lenders are increasingly targeting young, low-income, digitally savvy customers, who have small-ticket and short-term credit needs but have either zero or limited credit history.
But the high growth and dodgy recovery practices, exploiting personal data, adopted by some app-based lenders forced RBI to crack down on them in June, making it difficult for banks or NBFCs to lend through digital platform providers.
One of the features of payday loans (repaid when salary is credited) is the extremely high rate of interest, hovering around 15% per month. This allows lenders to operate even when delinquencies are at around 10%.
A senior executive with a large private bank said that their delinquencies in the STPL segment were in the low single digits. Although the bank used software to extend small-ticket loans, these were to their existing customers where a track record of cash flows is available. Unlike banks, loan apps run analytics on information scraped from statements sent by borrowers.
âWhile there is growth in the portfolio, the average ticket size has reduced continuously over the last two years, declining by 18% year-on-year by March 2020. As of August 2020, the average size increased by 5% over March 2020,â said the CRIF High Mark report.
Rating agencies say that there is no problem to lenders on account of retail loans yet. According to ICRA, collection efficiency (repayments) in the loans the rating agency tracks has remained steady in October 2020. However, the current collection efficiency continues to be below the pre-lockdown levels and is in the region of 81-95% across retail loans.