India’s fintech sector continues to witness significant growth in digital lending. This surge is driven by technological advancements and increased financial inclusion, making credit more accessible to a wider segment of the population. The latest report by the Fintech Association for Consumer Empowerment (FACE) highlights the impressive trends for FY24, showcasing a robust surge in both loan volume and value.
Interestingly, the total volume of loans disbursed in FY24 reached an all-time high of 10.19 crore, with a 35% YoY increase. The cumulative value of these loans also hit a new high, amounting to Rs 146,517 crore, an impressive 49% surge. The average loan ticket size grew 14% YoY to Rs 12,648, reflecting the growing trust and reliance on digital lending platforms.
However, it is important to note that the yearly growth in loan disbursements for FY24 has shown signs of stabilization compared to the previous fiscal year. FY23 witnessed a phenomenal 101% YoY jump in the number of loans disbursed and a remarkable 137% YoY surge in loan value. This moderation indicates a transition towards a more sustainable growth trajectory in the digital lending sector.
The FACE report analyzes trends from 37 FACE member companies lending to customers through their own Non-Banking Finance Companies (NBFCs) and in partnership with other regulated entities, mostly NBFCs.
A deeper dive into the disbursement values reveals that eight companies disbursed loans worth over Rs 5,000 crore, accounting for 78% of the total loan value in FY 24. Despite this, the growth in loan value for this category declined from 138% YoY in FY 23 to 53% YoY in FY 24. This decline indicates a more cautious approach by lenders towards high-value loans.
On the other hand, 15 companies disbursed loans worth less than Rs 500 crore, representing 2% of the total loan value in FY24. Interestingly, the loan value of this category increased from 34% YoY to 58% YoY during the same period. This data suggests a growing trust among lenders in issuing smaller-value loans. This approach will likely expand access to credit for the underserved population of India.
Taking a closer look at the March quarter of fiscal 2024, companies disbursed 2.69 crore loans worth Rs 40,322 crore. That’s an impressive 35.2% YoY increase in volume and a 40.8% YoY increase in value. The average ticket size of loans also increased 8.7% YoY to Rs 13,418 during Q4 FY24. Notably, eleven companies disbursed loans worth more than Rs 1,000 crore, representing 87% of the total loan value for that quarter.
“The digital lending sector is responsibly driving ahead with a sharp focus on customer-centricity, compliance, risk management and sustainable business models,” said Sugandh Saxena, CEO at FACE.
NBFCs Lead the Way, But Concerns Remain
One key takeaway from the FACE report is the dominance of Non-Banking Finance Companies (NBFCs) in India’s digital lending space. Of the 37 contributing companies, 28 are either NBFCs or have in-house NBFCs.
For example, Bajaj Finance, HDFC, Aditya Birla Finance, Reliance Capital, etc., are some of the largest NBFCs in India. On the other hand, Paytm, Jio Payments Bank, PhonePe, ZestMoney, etc., are some of the Indian startups that have partnered with NBFCs and banks to provide instant loans to consumers.
What’s more noteworthy is that these 28 NBFCs collectively accounted for a whopping 70% share of the total loan disbursements in India during FY 24. This dominance can be largely attributed to the greater flexibility and risk management capabilities of NBFCs. These qualities enable NBFCs to respond more swiftly to market demands and borrower requirements compared to their counterparts, such as Lending Service Providers (LSPs) without internal NBFC capabilities.
As a result, the growth in loan disbursement value for NBFCs or those with in-house NBFCs doubled in FY24 compared to LSPs.
However, it’s worth noting that the Reserve Bank of India (RBI) has expressed concerns about some practices adopted by these lenders and is formulating draft guidelines to regulate their operations.
In terms of fundraising in FY 24, digital lending companies in India raised Rs 1,913 crore in equity and Rs 16,259 crore in debt. However, there was a notable drop in equity funding compared to FY 23, reflecting evolving investor sentiments and market conditions.
A positive trend noted in the report is the increase in profitability among Indian fintech companies. In FY 24, 83% of the companies reported being profitable, up from 76% in FY 22. This trend underscores the sector’s growing financial health and resilience, despite regulatory challenges and market fluctuations.
In conclusion, India’s digital lending market is experiencing continued growth, with the focus shifting towards a more sustainable model. This includes responsible lending practices, diversification among lenders, and a focus on financial inclusion through smaller loan offerings. The industry’s ability to adapt to evolving regulations and prioritize responsible growth will be crucial for its long-term success.
