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Aggressive growth in personal loans leads to higher defaults among fintechs: DLAI-CIBIL report

The rapid growth in fintech lending has helped first time borrowers access formal credit channels. But loan repayment collections have been poor, leading to higher delinquencies or defaults for these lenders post the pandemic, according a report by TransUnion CIBIL and the Digital Lenders Association of India. While traditional lenders cater to different customer risk segments, fintech lenders operate in a lean mode primarily acquiring higher-risk customers through smartphones. “FinTechs were focused on a consumer segment untapped by traditional lenders which aided this rapid growth. Their streamlined loan decision process, combined with alternate data and reliance on latest analytics techniques, helped achieve faster disbursals,” the report said. Fintech lenders now account for 50% of fresh personal loans originations compared to just 10% two years ago, it says. “FinTech NBFCs, that leverage technology and digital channels heavily, have been instrumental in easing and accelerating lending in India by making it convenient and faster for end-consumers to access credit,” said Rajesh Kumar, managing director and chief executive officer TransUnion CIBIL. The report was released at the Digital Lenders Association of India’s 2021 Conclave on Thursday. “With the onset of the pandemic and the increase in people migrating to their hometowns, collections have become a stressful and challenging activity. Fintechs need to increase focus on collections and build analytics driven models which will help them collect profitably,” said Anurag Jain, president of DLAI and founder and executive director, KredX. Higher loan originations by fintechs While personal loan origination volumes by all lenders grew…

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