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In the last decade, the banks and non-banks in the country’s lending space have been gradually graduating into digital mode for various lending activities. It started with the FinTech companies launching various personal loan products on their dedicated portals. With the advent of greater bandwidth of the internet, mass penetration of mobile and various other personal access devices like laptop, tab, iPad etc. these lenders have got newer product offerings. The loan ticket size is typically on the lower side and the facility is for short to medium tenure. The entire process of application, data capturing, credit appraisal, underwriting, documentation sign up, disbursement and recovery are handled digitally through various applications. As a result the product delivery time has been crunched and a wide coverage of geography can be ensured with lesser sales force.

Then came the pandemic days. Healthcare protocol and logistical restrictions compelled the lenders-borrowers to migrate to the digital mode for transactions and consequently the numbers grew.  

Currently, moving from the personal loan space, the lenders are increasingly focussing on business loans. As in the rising interest scenario the larger, rate sensitive corporate borrowers have shifted low gear and the competition in the retail sphere is warming up, lenders expect the small to medium size companies (MSME) to fuel the next level of growth. A MSME loan qualifies for priority sector advances and therefore has an added attraction to the lenders. With an estimated work force of appx 110 million and a lot of fillips being offered under the government’s Production-Linked Incentive (PLI) Scheme across 14 key sectors, the MSME pack has been receiving a lot of attention which is expected to move north going ahead. A ballpark estimate pegs the credit to the micro and small enterprises during October ‘22 and that to medium enterprises at `5.52 triilion (y-o-y growth 20.4%) and `2.21 trillion (y-o-y growth 31%) respectively. In this scenario, creating a digital eco system for the small enterprises looks rational and necessary. Initiation and collection of lower ticket size loans digitally can make significant difference in terms of overall operational cost and return ratios of lenders.

HDFC Bank launched Smart Hub Vyapar Merchant app in October 2022. Amongst other offerings it allows instant, digital and paperless onboarding of bank’s customers and facilitates merchants to accept interoperable payments. However, the loan is priced little higher than the retail credit.  

ICICI Bank, another player in the banking space has also come out with a similar solution – InstaBIZ. Unlike the Vyapar app it is open to bank’s customers and non customers as well.

Aditya Birla Capital has also jumped into the bandwagon and shortly expected to launch an app which will connect its existing and new customers through web, mobile and APIs. This will not only facilitate selling of loan products but also cross sell the entire product bouquet of the NBFC.

Leading PSB Bank of Baroda has also introduced the digital MSME loans in its web portal. The facility is for working capital needs of the enterprise with a range of `10 lacs and 500 lacs.

The ecosystem has been further enriched by the emergence of financial loan aggregators who partner with frontline lenders in India. The lender partners offer over 100 SME loan products on these technology platforms. This brings up a unique opportunity to the borrower to fit a perfect match of his credit requirements and the various product features available across the board. Extensive use of AI based algorithm, APIs have made the customer experience delightful.  On a net – net basis the time and effort spent by the borrower, in this case, are much lower than the traditional loan sourcing cycle.

Looking at the current scenario, the digital lending space is expected to experience a lot of crowding going ahead. Credit flow to the industry is a basic need of a well oiled economy and as long as digital lending works towards that cohesion, it is welcome !! 

-The Author is DGM operations | Peerless Financial Services Ltd