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The pandemic has affected individuals, businesses, communities and economies globally. New trends are catching up, some fleeting and a few which will be deeply engrained into the system for the years to return .
As several industry sectors open up to the economy, massive changes are afloat. From consumer buying behavior to government response, there seems to be a replacement order of things building around us. The Indian Mortgage, Banking and Credit industry are going to be no exception and is sure to redefine itself in response to the Covid-19 virus.
In the previous couple of years, the credit economy in India grew at an unprecedented rate.
New loan origination in 2019 was 30% quite it had been in 2018. Unsecured lending (personal loans, housing loans and finance and consumer durable good loans) contributed the foremost to the quantity increase. The mastercard market also expanded and grew into the agricultural and semi-urban a part of the country. Fintech companies and digital lenders proliferated the market with highly specialized loan products and thus appealed significantly to the younger consumers (millennials).
When the whole industry was looking into a way forward for higher loan growth and financial technology revolution, the pandemic struck and things began to hamper .
Will banks and personal lenders still grow at an equivalent rate? What technology trends will still assist the expansion of credit industry in India?
Read on to seek out out how economic, technological and other people factors will influence the credit industry within the long and short term.
Retail loan disbursements have seen a pointy fall within the previous couple of months. Most categories, including, personal loans, housing loans, vehicle loans and mastercard debts have shrunk in comparison to the beginning of the year. This, however, doesn't come as a surprise, considering the very fact that the lockdown has pushed Indians to spend only on essentials and curbed their chance to form investments in any form.
Slow retail loan growth is predicted to continue into the months of the third quarter too because the national percentage has shot up and therefore the fear of the pandemic is yet to subside.
Experts believe that spurts of discretionary spending could also be observed as lockdowns ease but this doesn't guarantee a swift growth in retail loans until early next year. In other words, the pandemic has created a serious hiatus on the expansion rate of the retail loan sector, which has been the best source of expanding loan books since 2016.
As recommended by the RBI, financial institutions have offered loan term relaxation to facilitate business continuity (moratorium extension until August 31st). However, lack of income thanks to lay-offs and pay cuts will allow a better rate of delinquent loans within the upcoming months.
Cash flow problems among consumers will push NBFCs and other private lenders to reconsider their underwriting processes and therefore the methodologies wont to assess the creditworthiness of potential also as existing customers. Technologies like AI (artificial intelligence), big data analytics and machine learning should be adopted by lenders to make sure fair and yet stricter assessment of creditworthiness of borrowers. In fact, experts from Frost & Sullivan have predicted that the utilization of AI in loan management will increase by 31% annually and since automated systems cost almost 50-90% lesser than employees, the expansion rate is predicted to succeed in a whopping figure by 2022.
Banks and financial institutions have seen a transparent towards digital since the lockdown commenced.
Increased use of digital payment methods (the first 21-day lockdown period alone witnessed 42% hike in digital payments) and online lending are observed. However, getting into the digital space also, involves increased security measures and redefined operational methods. Technological like the utilization of automation tools and advanced technologies like robotics are often deployed in art collection and disbursement processes to fill the gaps.
2020 might not be a simple business year for lenders. Diversifying the merchandise portfolio and that specialize in value-added services as additional benefits could also be some ways of retaining customers and procuring new ones. By investing during a good loan management system that facilitates seamless workflow, enables quicker deciding and customer-focused services, lenders can focus better on their core business competencies. The complexity in business operations that results from increased product offerings and changing industry regulations are often better handled with the assistance of loan management systems.
As revealed by a study from the University College London, low-income groups n developing countries are the worst suffering from the pandemic. In India, these groups also are the smallest amount likely to realize access to traditional credit (as they'll not fulfill the eligibility requirements). Digital lenders will emerge as their savior and microfinance lenders will satiate the credit needs of those groups. Affordable repayment solutions and leveraging of digital technologies for timely loan disbursements and get in touch with lending are going to be the most important push factors of the systems.
Data analytics already holds a pivotal position within the lending industry. Going forward, data scientists are going to be using additional data to redefine the underwriting methodologies of monetary institutions, especially within the case of small-ticket loans. Data are going to be mined by tracing digital footprints, customer-profiling, mobile data scraping and geo-tagging and can be utilized in risk mitigation for the lender.
As the lockdown eases out, and little and medium-sized businesses are becoming back on their feet, lack of capital are going to be a serious problem. While traditional banks with high liquidity and lenders who are cognizant of MSME lifecycles are going to be ready to help the business, emerging lending platforms and platforms offering alternative funding options are needed to fill the gap.
The emerging lenders will specialise in building sector-specific products with convenient repayment facilities for the long, medium and short tenures. New players within the sector must hold significant information about the world they want to cater to and take the help of technology so as to achieve success and risk-free. Meanwhile, support within the sort of regulatory intervention to such institutions can help in reviving the MSME sector.
In the previous couple of weeks, banks and NBFCs have witnessed a big jump within the demand for gold loan. it's estimated that banks are currently holding about 2.35 lakh crore worth of the alpha-beta brass in secured loans. Small business owners and individuals with cash liquidity challenges are increasingly availing gold loans across the country. Since the worth of gold has increased radically in only one year, consumers are taking advantage of its high value through loans.
In the half-moon of 2020, India has attracted over USD 330 million through venture capitalists in fintech funding, thus surpassing China, which was considered because the tract for VCs. Start-ups within the lending and payment sectors grabbed the most important chunk of the investment. Since China, the place believed to possess given the Covid-19 virus to the planet , has been hardly hit, India with a better potential for fintech growth is predicted to form room for more digital lenders.
As mentioned earlier, more care and energy will enter assessing creditworthiness of consumers , as lenders tend to be more proactive in avoiding risk at this significant time. Another important factor that reconfirms the danger mitigation trend among lenders is that the rejection of loans for candidates who have availed the government-endorsed moratorium (the RBI has extended the moratorium of EMI loans until August 31st, 2020). In fact, many banks have rejected loans that have already been approved but haven't been disbursed to the borrower. While the govt declared that availing the moratorium won't have any negative impact on the credit score of a private , banks believe that sanctioning additional loans to borrowers with a cash crunch is riskier. To counter this, some industry experts stress that availing of moratorium isn't necessarily thanks to current cash crunch but how of preserving money for the uncertain economy.
As we are increasingly banking on technology to create robust models for the lending business, higher is that the got to mitigate cyber security risks, and APIs are how to realize them (apart from AI-enabled KYC platforms, specialized firewalls and other authentication methods). APIs automate data collection and validation and enhance the standard and quantity of customer data in hand. the buyer credit data driven by APIs, make lending decisions quicker and more accurate. The RBI has already established the initiative to digitize the KYC process and with the social distancing norms in situ , the utilization video KYC solutions that are RBI regulatory-compliant are going to be on the increase .
Co-lending is an appointment during which NBFCs facilitate the loan origination and collection process while the partnering bank houses the bulk of the loan (generally 80% or above). This model of lending is predicted to realize impetus because it benefits all stakeholders and resolves the fund-based growth problem of NBFCs. as an example , the country’s largest bank, depository financial institution of India (SBI) has already partnered with multiple traditional and digital NBFCs for co-lending arrangements and has actually taken things a notch up by digitizing the flow of loan leads from NBFCs to directly come to the bank with no human intervention. Mid-cap NFBCs like IIFL, Capital Float and Paisalo Digital are among those that have already taken the plunge.
Banks and NBFCs are strengthening their partnerships with digital lending platforms and other fintech companies to be prepared for the rebound of the pandemic. an in depth account about how various technologies and Fintechs are redefining the business for NBFCs are often learnt here.
Since cases of cyber-bullying and faux notices to borrowers were reported during the initial days of the lockdown, the RBI has intervened to curb such malpractices. Going forward, banks and NBFCs also because the digital lending platforms are going to be required to report details of their partnerships with other entities, beforehand . Confirmation of an equivalent must be administered in written form before sanctioning of the loan.
Also, banks and NBFCs, regardless of the platforms used, hold more accountability for loans. In other words, banks and their digital partners will together practice more transparency of operations and make joint efforts to determine the grievance redress mechanism. Violation of any of those rules by banks or NBFCs are going to be reviewed seriously by the RBI.
As cash liquidity continues to haunt businesses and households, small ticket loans or micro loans are going to be gaining momentum. These small tickets loans are almost like the FMCG products that are packaged as “Five rupee sachets” (hence these loans also are called sachet loans) that are used for penetration . Since commoditization of loans have lowered adoption, small-ticket loans with shorter tenure and lower interest rates are often an answer .
Lending institutions across the country are going to be facing a slowdown in business but the lending industry will play a big role in economic recovery. Digital transformation and brand purpose will take center stage. Digital tools and techniques are going to be aimed toward achieving refined operations, mitigated risks and customer loyalty. Brand purpose on the opposite hand will push companies to get the important purpose behind their existence and appearance for tactics to attach deeper into the lives of consumers . Clearly, strategic assessment and planning are required to handle the long-term, paradigm shifts brought upon us by the virus.
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