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Companies like KreditBee, which cater to mid-income customers in Tier-III to IV cities, are contributing to the resilience of digital lending. This is particularly noticeable in areas where state-run banks operate but do not provide superior service. The growth of digital credit options is being driven by strong customer demand and trust earned through effective customer protection measures, including a new code of conduct aimed at enhancing customer experience.
In December 2022, Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), highlighted compliance aversion as a regulatory challenge. Contrarily, Jatinder Handoo, CEO of the Digital Lenders Association of India (DLAI), stated that recent regulatory changes have fortified the digital lending ecosystem and spurred growth in retail and MSME lending.
Mint Road’s re-imagined first-loss default guarantees (FLDGs), capped at 5% of exposures, were initially seen as a potential hurdle for the new-to-credit (NTC) segment. However, credit bureau TransUnion (NYSE:TRU) reported that 31 million Indian consumers began using credit products in the first nine months of 2022, with millennials making up 42% of fresh credit users.
Mint Road is keeping a close watch on banks, especially private ones, regarding their retail lending practices. They are particularly scrutinizing lending to customers with a credit score of less than 700. This vigilance corresponds with a report indicating ‘herding behavior’ among banks shifting lending from industrial to retail sectors, potentially posing a systemic risk. Despite uncertainties in banks’ retail lending future, fintech lenders appear well-positioned to continue their growth trajectory.
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