How digi-lenders are bracing for Covid impact

Digital lenders – who peddle short-tenured micro loans to salaried individuals – are putting on a brave face as the spectre of job losses and pay cuts looms large. From tightening collection schedules to lowering credit limits, narrowing customer base to only include “super-prime” borrowers and hot-listing companies that may retrench employees, small online lenders are taking all possible precautions to stay afloat in the coming months.

Digital lenders, typically, are NBFCs that disburse small-ticket loans (from Rs 10,000 to Rs 1 lakh) to individual borrowers. Most of their work – from assessing creditworthiness of borrowers to KYC verification, customer on-boarding, loan disbursal and EMI collection – is done online.

The “procedural ease” of getting a short-term loan makes these players popular among young professionals. The top-10 digital lenders — which include EarlySalary, Capital Float, Loan Tap and CASHe – account for over 60% of India’s fintech NBFCs. These players, along with a few more, disburse micro loans worth Rs 1500 crore – Rs 2,000 crore every month.

“Job losses and salary cuts are a reality,” says Ketan Patel, CEO of CASHe, which keeps an outstanding loan of over Rs 250 crore across 1.1 lakh borrowers.

“We expect job losses to only take place in small corporate groups and SMEs. Large corporates may just resort to pay-cuts for now. They may cut salaries by 10 – 15% on an average – but this may bring down eligibility (criteria) for several borrowers,” he adds.

The monthly salary slip forms the basic document for any digital lender to assess quality of prospective borrowers. The borrower profiles are graded on the basis of their monthly earnings and reputation of the company they work for. Close of 60% of the loans disbursed by digital lenders are in tier-1 cities.

Majority of the borrowers are in the 20 to 35 years age-bracket, and two-out-of-three are males. Almost 50% of the borrowers are new-to-credit and nearly 70% have an annual income of Rs 1 lakh to Rs 5 lakh.

“Currently, we’re offering loans to only existing customers with good repayment records. Once this lockdown ends, we’ll tighten it up a little more. We’ll only focus on ‘super-prime customers’ for some time now,” says Satyam Kumar, CEO & co-founder of LoanTap, which has an outstanding loan book worth Rs 400 crore spread across 30,000 borrowers.

‘Super-prime’ customers are elite borrowers with pristine repayment records – which put them in a score-range between 801 and 900 on Cibil credit scale. A higher score is indicative of low credit risk.

“A large chunk of our borrowers come from IT/ITES sector; these people may see a drop in their variable pay this year. Their cash flows could be impacted for several months to come,” says LoanTap’s Kumar.

“This situation is even grimmer for manufacturing companies… They may see sharper salary cuts this year. Large profitable conglomerates may also not do very well. As lenders, we’re left with no option but to tighten our lending norms,” he adds.

Digi-lenders have started getting in touch with borrowers to understand their situation better. They are mindful of repayment defaults that may crop up in the near- to mid-term. Well-established lenders report NPA levels in the range of 1.3 to 1.5% at the end of every ‘cycle’ (A ‘cycle’ is the tenure for a batch of loans disbursed in a particular month. Average tenure is usually three to six months).

“We even lend to people who earn as low as Rs 15,000 per month… we’ll stick to this base salary limit, but we may not lend to people who work in small partnership firms and proprietorship concerns,” says Patel of CASHe.

Players like ‘EarlySalary’ have been empanelled by corporates to help their employees get easy credit. EarlySalary have over 500 corporate tie-ups and close to 20% of their new activations come through this channel.

“Now we hear some of our partner companies are laying off people… we’ll have to block borrowers working in these companies,” says Akshay Mehrotra, CEO of EarlySalary, a lending platform with loan books worth Rs 340 crore and 2 lakh live borrower accounts.

“Normally we’ve a ‘bounce rate’ of 15 – 18% per month; post the outbreak and lock down, this unit has jumped to around 50%,” says Mehrotra. ‘Bounce’, in lenders’ parlance, is the need to call a borrower to remind him of his monthly payment dues (after due date).

“So, we’ve now strengthened our customer calling team… in the first month of lockdown, we’ve managed over Rs 60 crore of repayments – which is very good. So now we’ll slow start lending – but very selectively,” Mehrotra adds.

New loan approval rates at EarlySalary have dropped from 35% in normal times to about 10% currently. The firm has also blocked 5 – 6% of its captive borrowers on the basis of their excessive leverage positions and past repayment behaviour.

Many digital lenders are now hoping to benefit from RBI’s NBFC-assistance package (worth Rs 50,000 crore). Last week, the central bank directed banks to lend 15% of the corpus to NBFCs with assets below Rs 500 crore.

“Some of us would benefit from this move. There are very few investment grade debt paper issuers amongst smaller NBFCs,” says Kumar of LoanTop.

Echoing Kumar is EarlySalary’s Mehrotra: “It’ll be really helpful if we can get funding assistance in the next 30 days,” he adds.

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