Paytm to trim small-ticket postpaid loans after RBI tightens norms

Paytm will reduce the disbursement of small-ticket size loans, specifically those less than Rs 50,000, in the wake of the Reserve Bank of India (RBI) tightening norms for unsecured personal loans.

The company said that this adjustment will result in a roughly 50 per cent decline in these disbursements, also known as postpaid loans. However, the company added that the impact on margins or revenue would be minimal.

The Noida-based financial technology (fintech) firm’s decision to slow down on postpaid loans follows the RBI’s recent increase in the risk weighting for unsecured personal loans from 100 per cent to 125 per cent.

“In light of recent macro developments and regulatory guidance, and in consultation with lending partners, aligned with our continued focus on maintaining a healthy portfolio, the company has recalibrated the portfolio origination of amounts less than Rs 50,000. This primarily affects the postpaid loan product, which will now constitute a smaller part of our loan distribution business going forward,” the company stated in a press release.

In the second quarter (Q2) of 2023-24 (FY24), the company expended postpaid loans amounting to Rs 9,010 crore, reflecting a 122 per cent year-on-year (Y-o-Y) increase from Rs 4,050 crore in Q2 of 2022-23, according to regulatory filings.

Meanwhile, the fintech major will shift its focus to disbursing higher-ticket personal and merchant loans to lower-risk and highly credit-worthy customers, in collaboration with large banks and non-banking financial companies (NBFCs).

It disbursed personal loans amounting to Rs 3,927 crore and merchant loans worth Rs 3,275 crore in Q2FY24.

On a quarter-on-quarter (Q-o-Q) basis, the value of disbursements on the personal loan front has decreased from Rs 4,062 crore in the first quarter (Q1) of FY24 to Rs 3,927 crore in Q2FY24. The volume of these personal loans dropped from 300,000 to 240,000 during the same period.

The company may be anticipating faster, early delinquencies for individuals taking a personal loan for the first time. Moreover, credit availability for smaller tenures, such as three and six months, was experiencing higher leverage and reduced collection efficiency, as reported by Business Standard in October.

As of September 2023, the average ticket size and tenure for personal loans stood at Rs 1.65 lakh and 16 months, respectively.

Paytm has witnessed steady growth in the merchant loan space.

The company added that it will concentrate on expanding merchant loans disbursed to micro, small, and medium enterprises as business loans.

On a Q-o-Q basis, the value of merchant loans disbursed has grown by 19 per cent, from Rs 2,744 crore in Q1FY24 to Rs 3,275 crore in Q2FY24. On a Y-o-Y basis, the value of merchant loans disbursed has nearly trebled from Rs 1,208 crore.

In Q2FY24, the company disbursed 180,000 merchant loans, up from 140,000 loans in Q1FY24.

“As these loans are provided for business purposes to small merchants, they remain unaffected by the recent regulatory guidance,” the company observed.

As of September 2023, the average ticket size and tenure for merchant loans stood at Rs 1.8 lakh and 13 months, respectively.

The company has partnered seven NBFCs for loan distribution. It is in the process of integrating one bank and two NBFCs, a task that will be completed during the fourth quarter of FY24 and Q1 of 2024-25.

“We will continue to focus on originating high-quality portfolios for our lending partners, along with strict adherence to risk and compliance. We have witnessed significant scale and acceptance for our loan distribution business, and we believe this expansion will further contribute to our business growth,” a spokesperson for Paytm said.