In a significant shift, major Indian banks and non-bank lenders have requested their fintech partners to limit the issuance of tiny personal loans, especially those below Rs. 50,000 (approximately $600). This move comes just weeks after the Reserve Bank of India (RBI) imposed stricter regulations on unsecured lending, citing concerns over rising debt levels and potential risks associated with the rapid growth of small-ticket loans.
The RBI’s new guidelines require banks to allocate more capital to cover personal loans and lending through non-bank financial companies (NBFCs). This has made extending small-ticket loans significantly less attractive for banks, prompting them to re-evaluate their exposure to this segment.
Paytm, one of India’s leading fintech platforms, became the first to announce a pullback from sub-50,000-rupee loans following the RBI’s directive. This decision reflects the broader sentiment among banks, with many expressing discomfort with their fintech partners aggressively pursuing small-ticket loans.
“There is a clear signal from the RBI to pull back, so we will,” said a top banker at a mid-sized private bank. “We have signaled to our fintech partners that we don’t want to be present in the less-than-50,000-rupee loan category.”
While banks are curtailing their exposure to small-ticket loans, they are not severing ties with fintech partners entirely. They are instead encouraging them to focus on larger loan categories with potentially lower risks.
“We don’t intend to completely cut back funding to fintech partners at this point, but we are discouraging them from going big on small-ticket personal loans,” said another banker.
This pullback is expected to have a significant impact on the availability of small-ticket loans in India. Macquarie, a financial services company, estimates that the industry’s overall loan growth will moderate to 12-14%, down from its current level above 15%.
Paytm’s decision to scale back small loans has already impacted its stock price, which tumbled by 20%. This decline also weighed on Aditya Birla Capital, a key lending partner that has also indicated its intention to reduce its exposure to small-ticket loans.
Macquarie attributes this cautious approach to the increased regulatory scrutiny of banks’ growth and asset quality. Additionally, a third banker confirmed that his government-owned bank has asked its fintech partners to be selective when issuing small-ticket loans, stating that they “don’t want to come under the regulator’s lens.”
Overall, the Indian banking sector is experiencing a significant shift in its approach to small-ticket personal loans. The RBI’s recent regulations and growing concerns about rising debt levels are prompting banks to be more cautious and selective in their lending practices, which is likely to impact the availability of such loans in the near future.
