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Small Ticket Personal Loans (STPLs), which include loans with a value of less than Rs 25,000, remain a cause of concern for the industry on the back of heightened risk associated with these, Incred Finance said on Wednesday.
Incred Finance, a Mumbai-based Non-Banking Financial Company (NBFC), said traditional personal loans, which have larger ticket sizes compared to STPLs, undergo strict underwriting leading to improved risk performance.
Standard personal loans have seen their risk performance improve from 1.3 per cent in March 2021 to 0.8 per cent in March 2023. However, STPLs have recorded a slip in their risk performance from 6.6 per cent in March 2021 to 11.4 per cent in March 2023.
Further, disbursements of loans through STPL have seen a sharp increase over the years. The loans disbursed in the segment have increased from around 57 lakh in March 2021 to 204 lakh in March 2023. Whereas, loans with an average ticket size of more than Rs 25,000 have increased to 6,800,000 from 3,600,000 across the same time period.
Incred Finance noted that its personal loans portfolio was in the regular personal loan segment, with an average ticket size being over Rs 2,00,000.
“We are continuing to see excellent risk performance in this segment, as are our peers. While we have a negligible exposure to STPL, we believe these loans address a genuine customer need. We expect this segment to shrink while risk is being corrected, and then to rebound. We are very confident that our personal loans portfolio will continue to grow strongly and safely,” said Prithvi Chandrasekhar, CEO of Consumer Finance & Risk Analytics at InCred Finance.
“We are young NBFCs which play in the high-risk areas like personal loans. We have taken a conservative approach towards risk management which is serving us well. A lot of people who were over-lending to the market might have to contract. We are in a position to continue to grow,” Chandrasekhar added.
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The company expects the consumer lending space in India to grow by 15 to 20 per cent in value terms annually.
However, the company said that due to the increased risk in the segment coupled with the Reserve Bank of India (RBI’s) decision to increase the risk weights for unsecured personal loans, the industry is likely to limit their exposure towards Small Ticket Personal Loans (STPL).
“There will definitely be a shift away from STPL, not specifically because of the RBI guidelines but because the risk is worsening. It will naturally respond. It's a question of how quickly it will respond. But the RBI’s nudge will move the market in that direction. The only point I would make is that not just established NBFCs and banks but also younger NBFCs like ourselves would be a part of that shift in the market. We are balance sheet players, not (Loan Service Providers) LSPs. They would all keep their market share away from the LSPs and STPL as a category would decline naturally,” Chandrasekhar added.
Out of the total Assets Under Management (AUM) of Rs 7481 crore, 43 per cent accounted towards consumer loans, 29 per cent to education loans, and 28 per cent to MSMEs.
According to the company’s recent report on Consumer Finance Overview, for the industry, retail lending is both the biggest and the fastest-growing segment at Rs 89 trillion, amounting to 46 per cent of the overall credit in the economy. Whereas, corporate lending amounts to Rs 74 trillion, emerging as the second biggest segment.
The report further noted that the consumption loan is a key driver in retail lending. Consumer finance outstanding amounts to over Rs 22 trillion. Within the consumption loans, personal loan is the largest segment with an outstanding of Rs 11 trillion. Balances are continuing to grow at over 25 per cent P.A across product categories led by Credit Cards at 34 per cent, Consumer Durable Loans (33 per cent), 2-wheeler loans (31 per cent), Personal Loans (29 per cent), Car Loans (26 per cent) and Gold Loans (25 per cent).
