Credit demand reviving, but fintech lenders struggle to raise low-cost debt
Banks have increased risk premiums due to stress on their books amid the Covid-19 pandemic and a lack of clarity over whether a moratorium on loans would be extended.
For most fintech companies, term loans from banks and equity capital from investors are the two major sources of capital. However, both these avenues have been hit because of lockdowns, industry players said.
Mumbai: Fintech lenders are struggling to raise low-cost debt, even as demand for credit is gradually reviving.
The reason: banks have increased risk premiums due to stress on their books amid the Covid-19 pandemic and a lack of clarity over whether a moratorium on loans would be extended.
The country’s growing fintech lending ecosystem is fragmented – both in terms of business models and how they access capital.
For most fintech companies, term loans from banks and equity capital from investors are the two major sources of capital.
However, both these avenues have been hit because of lockdowns, industry players said.
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They said partner banks have increased loan rates by more than 200 basis points, or 2 percentage points, since April, factoring the pandemic-induced risk into their pricing. One basis point is 0.01 percentage points.
Moreover, loan disbursements under co-lending partnerships, where the risk is shared between banks and non-banks, have also slowed in the unsecured personal loan as well as small business loan categories, they said.
“The deals which were happening at 13% in March have gone up to 15%; some deals are also happening at 17%,” the chief executive of a consumer lending fintech said, asking not to be named.
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Rates for lending marketplaces have increased by nearly 400 bps, or 4 percentage points, since March, he added.
“Banks are also getting more comfortable lending short-term,” said Gaurav Hinduja, cofounder and MD of Capital Float. “Companies are moving towards short-term debt instruments such as non-convertible debentures (NCDs) and commercial papers (CPs) to raise debt.”
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Capital Float, which lends to both consumers as well as small businesses, has raised nearly ₹100 crore through a mix of NCDs and CPs over the last six weeks, Hinduja said. Its monthly disbursements, which were at ₹150 crore before March, slowed to ₹50 crore in June, even amid early signs of green shoots, he added.
EarlySalary – another digital lender in the short-term personal loan segment – said recovery in disbursements for most fintech non-banks may only happen next year.
