Decline in lending rates, focus on growth and credit metrics in retail lending, P2P lending norms, increased focus on digitisation and initiatives towards affordable housing are helping set a strong base for retail lending
The year 2017 has been eventful for the retail lending industry. Major factors like steady decline in lending rates, strong focus and performance on growth and credit metrics in retail lending, investor interest in the segment, P2P regulation formalising the new category, increased focus on digitisation and path-breaking initiatives towards affordable housing are helping set a strong base for retail lending. Some of the big trends I see in the New Year are:
Contrary to the slowdown in credit offtake by the corporate sector, retail credit segment has registered a strong growth of around 20% this calendar year. Key infrastructural initiatives like implementation of JAM—Jan Dhan Yojana, Aadhaar and Mobile —has improved the accessibility of retail credit products.
Jan Dhan Yojana: Over 30 crore new bank accounts have been opened under this scheme, paving the way for the unbanked to come into the formalised banking and lending umbrella.
Aadhaar: The world’s largest citizen identity initiative helped create IndiaStack, allowing the financial sector to access KYC details through APIs, thereby helping reduce a lot of friction and cost.
Mobile: India today has more than 300 million smartphone users, removing geographical constraints of access to financial products. New venture investments will drive experiments in alternate lending: Today, a significantly sized consumer segment is unable to access credit from banks and financial institutions due to lack of any credit history or a below par credit score. In this scenario, new-age organisations offering credit basis alternate data, have burst onto the lending scene and have come to the rescue of these retail customers. Aided by explosive growth in payments industry and penetration of internet and smartphones, lenders have started to use data points like online transaction data, mobile data, banking data, and to a small extent even social media data, to experiment and come up with lending scorecards.Recently, the people-to-people (P2P) lending guidelines were released which should further help structure and expand the lending reach. I expect some of these pilots to succeed and scale up in 2018. As an industry, we also know that a lot of these pilots may fail but hopefully there would be contained losses.
Growth in MSME lending
With around 55 million MSME units employing over 80 million people, this sector contributes about 8% to the national GDP. Around 90% of these units are classified as micro businesses. A crucial sector like this, and specifically the micro business segment, has traditionally been credit starved due to difficulty in income validation, complicated documentation, inability to predict future cash flows and compliance related challenges because of accounting and taxation laws. With expected digitisation of sales data through GST and strong growth of digital commerce in general, more and more lenders would be able to use these digital data for SME lending, instead of using traditional ITRs that is commonly plagued by under-reporting of income. Lenders, hence, are likely to approve more businesses and for higher loan amounts.
Also, the first version of Mudra scheme by the government to promote SME lending has seen mixed response at best. However, there is a clear and strong focus to make this scheme work better and more accessible. Globally, this sector has seen stronger growth than retail lending in the last few years and given the under-penetration and opportunity, India hopefully should be able to follow.
Growth in affordable housing segment
With home loan to GDP ratio of just 9%, the Indian housing finance sector remains relatively under-penetrated when compared to its Asian peers like China (20%), Thailand (17%), and Malaysia (34%). While the premium housing segment has stayed slow for the last few years and is expected to improve a bit in 2018, the affordable housing and affordable housing loans segment is expected to bring in a lot of incremental growth to the industry.
The government has a strong stated intent for 20 million housing units to be built as part of ‘Housing for All by 2022’ initiative. The Pradhan Mantri Awaaz Yojana scheme has given a strong fillip to the industry. The industry is already seeing some growth in the segment, driven by Tier 2 and 3 cities and this is expected to continue strongly.
The writer is CEO & co-founder, Paisabazaar.com