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nbfc credit: Unsecured loans in focus, fintechs see NBFC credit taps drying up

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Non-banking financial companies (NBFCs) are tightening norms for credit disbursal to lending startups, especially those offering small, unsecured loans, industry executives said.

This follows the central bank’s strictures in mid-November requiring financial institutions to increase risk weights, or capital outlay, for unsecured consumer loans by 25%.

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In turn, banks that lend to NBFCs have turned cautious forcing these companies to pull back on their credit lines to fintechs that offer small personal loans to consumers.

Large NBFCs like Aditya Birla Finance and Poonawalla Fincorp have informed the fintech startups they do business with that they will no longer provide capital for the highly risky buy-now-pay-later (BNPL) and very small ticket size consumer loans, according to the people cited above.

“Aditya Birla Finance had allocated around Rs 600 crore for this segment, but they are reducing the allocation by 50%,” said a chief executive at an NBFC.

Highly Rated Fintechs in Favour

Discover the stories of your interest

Aditya Birla works with fintech startups such as Fibe (formerly EarlySalary), Paytm and Navi.

Debt Story_graphic_ETTECHETtech

Industry executives in the know said that Poonawalla Fincorp has also informed its fintech partners that it will start to withdraw credit lines for small-ticket unsecured loans.

Also read | ZestMoney saga highlights drying NBFC credit flow

Poonawalla Fincorp works with fintechs like Ring (previously Kissht), Axio (previously Capital Float), Slice, and Kreditbee.

Emailed queries to Aditya Birla remained unanswered while Poonawalla Fincorp declined comment.

“NBFCs do not want to lend to fintechs operating in the sub-Rs 25,000 (loan) category,” said a fintech entrepreneur whose startup offers such small-ticket loans.

“They (NBFCs) prefer to work with highly rated fintechs providing loans around Rs 50,000 and above,” he added.

Mumbai-based InCred Finance estimates that the volume of sub-Rs 25,000 loans has grown fourfold in the last two years, while the number of other personal loans has doubled in the same period.

“While we have a negligible exposure to STPL (small-ticket personal loans), we believe these loans address a genuine customer need. We expect this segment to shrink while risk is being corrected, and then to rebound,” said Prithvi Chandrasekhar, CEO consumer finance and risk analytics at InCred Finance.

STPL, or those in the below Rs 25,000 range, for which EMIs have not been paid for more than 30 days are at 16.6% and those where EMIs have not been paid for more than 90 days are at 10.4%, according to current industry estimates.

Fintech startup ZestMoney on Tuesday said it was shutting down operations by the end of this month. A day later, financial services major Paytm said it was winding down Paytm Postpaid—its BNPL arm—and would instead focus on big-ticket personal and business loans.

“Some of it is a knee-jerk reaction, but overall, with the macro-economic stress and the massive growth in personal loans, it is needed to protect the ecosystem from large-scale defaults,” said one fintech founder.

Ballooning small loans

The volume of unsecured credit cards, short duration personal loans and consumer loans has ballooned over the last two years. Fintech startups like Kreditbee, PostPe (BharatPe), Paytm, ZestMoney, CapitalFloat all tapped into this space with technology-driven products.

Data from the RBI shows that unsecured personal loans have surged to around Rs 12 lakh crore in September 2023 from around Rs 8 lakh crore in 2021. Credit card outstanding grew to Rs 2.17 lakh crore from Rs 1.3 lakh crore in the same time frame.

Aditya Birla Finance said that in the September quarter it disbursed Rs 5,220 crore worth of personal and consumer loans, compared to Rs 3,513 crore last year. In the last one year, such loans on its books have grown 35%.

Poonawalla Fincorp said in its last financial results that going forward it will have 60% of its books in the unsecured category from around 54% currently.


Non-banking financial companies (NBFCs) are tightening norms for credit disbursal to lending startups, especially those offering small, unsecured loans, industry executives said.

This follows the central bank’s strictures in mid-November requiring financial institutions to increase risk weights, or capital outlay, for unsecured consumer loans by 25%.

Elevate Your Tech Prowess with High-Value Skill Courses

Offering College Course Website
Indian School of Business ISB Professional Certificate in Product Management Visit
Indian School of Business ISB Digital Transformation Visit
IIM Lucknow IIML Executive Programme in FinTech, Banking & Applied Risk Management Visit

In turn, banks that lend to NBFCs have turned cautious forcing these companies to pull back on their credit lines to fintechs that offer small personal loans to consumers.

Large NBFCs like Aditya Birla Finance and Poonawalla Fincorp have informed the fintech startups they do business with that they will no longer provide capital for the highly risky buy-now-pay-later (BNPL) and very small ticket size consumer loans, according to the people cited above.

“Aditya Birla Finance had allocated around Rs 600 crore for this segment, but they are reducing the allocation by 50%,” said a chief executive at an NBFC.

Highly Rated Fintechs in Favour

Discover the stories of your interest

Aditya Birla works with fintech startups such as Fibe (formerly EarlySalary), Paytm and Navi.

Debt Story_graphic_ETTECHETtech

Industry executives in the know said that Poonawalla Fincorp has also informed its fintech partners that it will start to withdraw credit lines for small-ticket unsecured loans.

Also read | ZestMoney saga highlights drying NBFC credit flow

Poonawalla Fincorp works with fintechs like Ring (previously Kissht), Axio (previously Capital Float), Slice, and Kreditbee.

Emailed queries to Aditya Birla remained unanswered while Poonawalla Fincorp declined comment.

“NBFCs do not want to lend to fintechs operating in the sub-Rs 25,000 (loan) category,” said a fintech entrepreneur whose startup offers such small-ticket loans.

“They (NBFCs) prefer to work with highly rated fintechs providing loans around Rs 50,000 and above,” he added.

Mumbai-based InCred Finance estimates that the volume of sub-Rs 25,000 loans has grown fourfold in the last two years, while the number of other personal loans has doubled in the same period.

“While we have a negligible exposure to STPL (small-ticket personal loans), we believe these loans address a genuine customer need. We expect this segment to shrink while risk is being corrected, and then to rebound,” said Prithvi Chandrasekhar, CEO consumer finance and risk analytics at InCred Finance.

STPL, or those in the below Rs 25,000 range, for which EMIs have not been paid for more than 30 days are at 16.6% and those where EMIs have not been paid for more than 90 days are at 10.4%, according to current industry estimates.

Fintech startup ZestMoney on Tuesday said it was shutting down operations by the end of this month. A day later, financial services major Paytm said it was winding down Paytm Postpaid—its BNPL arm—and would instead focus on big-ticket personal and business loans.

“Some of it is a knee-jerk reaction, but overall, with the macro-economic stress and the massive growth in personal loans, it is needed to protect the ecosystem from large-scale defaults,” said one fintech founder.

Ballooning small loans

The volume of unsecured credit cards, short duration personal loans and consumer loans has ballooned over the last two years. Fintech startups like Kreditbee, PostPe (BharatPe), Paytm, ZestMoney, CapitalFloat all tapped into this space with technology-driven products.

Data from the RBI shows that unsecured personal loans have surged to around Rs 12 lakh crore in September 2023 from around Rs 8 lakh crore in 2021. Credit card outstanding grew to Rs 2.17 lakh crore from Rs 1.3 lakh crore in the same time frame.

Aditya Birla Finance said that in the September quarter it disbursed Rs 5,220 crore worth of personal and consumer loans, compared to Rs 3,513 crore last year. In the last one year, such loans on its books have grown 35%.

Poonawalla Fincorp said in its last financial results that going forward it will have 60% of its books in the unsecured category from around 54% currently.

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