Digital Lending in India

Digital Lending in India by Sam Ghosh 26th May 2020

Introduction
Introduction Policy Structure Demand Side Impact of COVID-19Supply SideTech Structure

Data: Ficci & pwc
What problem does Digital Lending solve?
● Solution for ‘thin file’ borrowers.

Data: IFC
MSME Credit Gap in India
● IFC: The addressable credit gap in the MSME sector is estimated to be INR 25.8 trillion (USD 397 billion) as
of 2018.

Data: Ficci & pwc
Growth of Digital Lending in India

Introduction Policy Structure Demand Side Impact of COVID-19Supply SideTech Infrastructure
Technology Infrastructure

India Stack TReDSUIDAI- Aadhar UPI GSTGeMJan Dhan - PMJDY
UIDAI - Aadhar
● Aadhaar number is a 12-digit random number issued by the UIDAI (“Authority”) to the residents of
India after satisfying the verification process laid down by the Authority. Any individual, irrespective of
age and gender, who is a resident of India, may voluntarily enrol to obtain Aadhaar number.
● The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016
makes the Unique Identification Authority of India (UIDAI) the authority of the Aadhar process.
● Till date, more than 1.2 billion Aadhar number has been generated and more than 8.1 billion eKYC has
been done.
● Aadhar based e-KYC process helps the digital lending platforms substantially reduce the turnaround
time for processing loan applications by making the verification process completely paperless.
PCR

Jan Dhan - PMJDY
● Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access
to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance,
Pension in an affordable manner. An account can be opened in any bank branch or Business
Correspondent outlet. Accounts opened under PMJDY are being opened with Zero balance.
● As per the latest records - 228.8 million beneficiaries in rural/semi-urban and 155.2 million
beneficiaries in urban areas - total 384.1 million.
● A bank account is the first step towards financial inclusion and adoption of financial services.
India Stack TReDSUIDAI- Aadhar UPI GSTGeMJan Dhan - PMJDY PCR

India Stack
● IndiaStack is a set of APIs that allows governments, businesses, startups, and developers to utilise a
unique digital Infrastructure to solve India’s hard problems towards presence-less, paperless, and
cashless service delivery.

India Stack - Architecture
Source: IndiaStack

India Stack - Services
Source: IndiaStack
Aadhar Auth API eKYC API eSign API
Aadhaar “authentication” means the process wherein
Aadhaar number, along with other attributes, including
biometrics, are submitted to the Central Identities
Data Repository (CIDR) for its verification based on
information or data or documents available with it.
UIDAI provides an online service to support this
process. Aadhaar authentication service only
responds with a “yes/no” and no personal identity
information is returned as part of the response.
With the explicit consent /authorization by the
resident, the Aadhaar e-KYC service provides an
instant, electronic, non-repudiable “Proof of Identity”
and “Proof of Address” along with the date of birth
and gender. In addition, it also provides the resident’s
mobile number and email address to the service
provider, which helps in further streamlining the
process of service delivery.
eSign service allows applications to replace manual
paper based signatures by integrating an API which
allows an Aadhaar holder to electronically sign a
form/document anytime, anywhere, and on any
device legally in India.
UPI API DigitalLocker API DEPA
“Unified Payment Interface” (UPI) enables all bank
account holders in India to send and receive money
instantly from their smartphones without the need to
enter bank account information or net banking userid/
password. For using UPI, users need to create a
Virtual Payment Address (VPA) of their choice and
link it to any bank account. The VPA acts as their
financial address and users need not remember
beneficiary account number, IFSC codes, or net
banking user id/password for sending or receiving
money. UPI can be used to for Peer-Peer,
Peer-Merchant & Business-Business payment
transactions.
Targeted at the idea of paperless governance,
DigiLocker is a platform for issuance and verification
of documents & certificates digitally, thus eliminating
the use of physical documents. Indian citizens who
sign up for a DigiLocker account get a dedicated
cloud storage space that is linked to their Aadhaar
(UIDAI) number. Organizations that are registered
with Digital Locker can push electronic copies of
documents and certificates (e.g. driving license, Voter
ID, School certificates) directly into citizens lockers.
Data Empowerment and Protection Architecture
A novel consented data-sharing architecture
which enables sharing data with data
consumers (eg. Digital Lender or Health
Insurance provider) in a way that the data is
accessible only by the data consumer, only for a
stipulated amount of time and only for a
stipulated purpose, as consented to by the user.

India Stack - Consumer Lending
Source: BCG and Google

Government e Marketplace
● GeM is a short form of one stop Government e-Market Place hosted by DGS&D where common user
goods and services can be procured. GeM is dynamic, self sustaining and user friendly portal for
making procurement by Government officers.
● Presently more than 7400 products in about 150 product categories and hiring of transport service are
available on GeM POC portal. Transactions for more than Rs 140 Crore have already been processed
through GeM.
● GeM is a completely paperless, cashless and system driven e-marketplace that enables procurement
of common use goods and services with minimal human interface.
● The transaction data at GeM is credible source of data for extending working capital financing.
● Recently GeM has partnered with some banks for payment related services and it is also reported that
GeM is working with Banks, TReDs, and SIDBI to provide bill discounting and financing of working
capital where the cost of capital is linked to the performance and rating of a seller on the marketplace.

Trade Receivables Discounting System (TReDS)
● TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro,
Small and Medium Enterprises (MSMEs) through multiple financiers. These receivables can be due
from corporates and other buyers, including Government Departments and Public Sector Undertakings
(PSUs).
● Currently TReDS licence has been issued to three players: Receivables Exchange of India Ltd (RXIL),
a joint venture between Small Industries Development Bank of India (SIDBI) and National Stock
Exchange of India Limited (NSE); Invoicemart, promoted by A Treds Ltd (a joint venture of Axis Bank
and mjunction services); and M1Xchange, promoted by Mynd Solutions Private Limited.

Unified Payments Interface (UPI)
● Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile
application (of any participating bank), merging several banking features, seamless fund routing &
merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be
scheduled and paid as per requirement and convenience.
● As on April 2020, there are 148 Banks live on UPI, 1.25 billion transactions per month and more than
Rs. 2 trillion worth of transaction.
● It is reported that the UPI is the prefered mode of repayment to digital lenders.

Good and Services Tax (GST)
● Lack of cash-flow data is a major issue in credit assessment of SMEs making credit to expensive for
lenders.
● GST database can solve that problem creating a comprehensive and credible database which can
reduce risks and cut costs while scoring these businesses for credit worthiness.
● GST database is really helpful for cash-flow based lending (eg. working capital financing). For
example, ICICI Bank started MSME lending based on GST data.

Public Credit Registry (PCR)
● A public credit registry refers to an extensive database of credit information of borrowers that is
accessible to all lending and credit decision-making institutions. Typically, the registry is managed by a
public authority like the central bank of the country, and reporting of loan details to the registry by
lenders and/or borrowers is mandated by the law.
● Presently India has both private and public sector entities storing credit data but the current system
has various shortcomings such as lack of comprehensive data, time lag and discrepancies between
sources etc.
● These shortcomings lead to various inefficiencies in the credit market.
● The National Strategy for Financial Inclusion 2019-2024 set a goal of making a fully functional PCR by
March 2022.

Policy Structure

NBFC Financial Inclusion Strategy Data Safety and Privacy MUDRA
Non-Banking Financial Company (NBFC) - Definition
● Section 45I(f) of Reserve Bank of India Act, 1934 defines an NBFC as
○ a “Financial Institution” which is a company,
○ a Non‐Banking Institution which is a company and which has as its Principal Business the receiving of deposits,
deposits, under any scheme or arrangement arrangement or in any other manner, or lending in any manner,
○ such other Non‐Banking Institution or class of such institutions, as RBI specifies.
● RBI - “A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act…. engaged in
the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or
local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or
sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable
property. A non-banking institution which is a company and has principal business of receiving deposits under any
scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a
non-banking financial company (Residuary non-banking company).”

NBFC
Non-Banking Financial Company (NBFC) - Classification
NBFC Classification
Liability Based Classification Activity Based Classification Size Based Classification
Financial Inclusion Strategy Data Safety and Privacy MUDRA

Non-Banking Financial Company (NBFC) - Liability Based Classification
1. NBFCs-D - NBFCs accepting public deposits.
2. NBFCs-ND - NBFCs not accepting/holding public deposits.

Non-Banking Financial Company (NBFC) - Activity Based Classification
1. Investment and Credit Company (NBFC-ICC)
○ Asset Finance Companies (AFC): An AFC is a company which is a financial institution carrying on as its principal
business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors,
lathe machines, generator sets, earth moving and material handling equipments, moving on own power and
general purpose industrial machines.
○ Loan Companies (LCs): LC means any company which is a financial institution carrying on as its principal
business the providing of finance whether by making loans or advances or otherwise for any activity other than
its own but does not include an Asset Finance Company.
○ Investment Companies (ICs): IC means any company which is a financial institution carrying on as its principal
business the acquisition of securities,
2. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on
the business of acquisition of shares and securities which satisfies the following conditions:-
(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years
from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
(c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank
deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees
issued on behalf of group companies.
(e) Its asset size is ₹ 100 crore or above and
(f) It accepts public funds.

Non-Banking Financial Company (NBFC) - Activity Based Classification…..
3. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) - DF-NBFC is a company
registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise
resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only
Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
4. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit
taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the
following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban
household income not exceeding ₹ 1,60,000;
b. loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;
c. total indebtedness of the borrower does not exceed ₹ 1,00,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
5. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking
NBFC engaged in the principal business of factoring. The financial assets in the factoring business
should constitute at least 50 percent of its total assets and its income derived from factoring business
should not be less than 50 percent of its gross income.

Non-Banking Financial Company (NBFC) - Activity Based Classification…..
6. Mortgage Guarantee Companies (MGC): MGC are financial institutions for which at least 90% of the
business turnover is mortgage guarantee business or at least 90% of the gross income is from
mortgage guarantee business and net owned fund is ₹ 100 crore.
7. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through which
promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned Non-Operative
Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services
companies regulated by RBI or other financial sector regulators, to the extent permissible under the
applicable regulatory prescriptions.
8. NBFC- Peer to Peer Lending Platform: These NBFCs act as intermediaries providing an online
marketplace or platform to the participants involved in Peer to Peer lending. They cannot raise
deposits as defined by or under Section 45I(bb) of the Act or the Companies Act, 2013, lend on their
own, not provide or arrange any credit enhancement or credit guarantee, facilitate or permit any
secured lending linked to its platform, hold, on its own balance sheet, funds received from lenders for
lending, or funds received from borrowers for servicing loans, and cross sell any product except for
loan specific insurance products, permit international flow of funds.

Non-Banking Financial Company (NBFC) - Size Based Classification
Systemically Important Important Non‐Deposit taking NBFCs (NBFCs‐ND‐SI)
● All NBFCs – ND with an asset size of Rs. 500 crore and more as per the last audited balance
sheet are considered as a systemically important NBFC – ND (NBFC-ND-SI).
● Prudential regulations such as capital adequacy requirements, exposure norms along with,
reporting requirements were made applicable to them.

National Strategy for Financial Inclusion 2019-2024
Vision Strategic Objectives

National Strategy for Financial Inclusion 2019-2024 - Strategic Objectives
Universal Access to Financial Services Providing Basic Bouquet of Financial Services Access to Livelihood and Skill Development
Every village to have access to a formal financial
service provider within a reasonable distance
of 5 KM radius. The customers may be on
boarded through an easy and hassle-free digital
process and processes should be geared
towards a less-paper ecosystem.
Every adult who is willing and eligible needs to
be provided with a basic bouquet of financial
services that include a Basic Savings Bank
Deposit Account, credit, a micro life, and non-life
insurance product, a pension product, and a
suitable investment product.
The new entrant to the financial system, if eligible
and willing to undergo any livelihood/ skill
development programme, may be given the
relevant information about the ongoing
Government.
Financial Literacy and Education Customer Protection and Grievance Redressal Effective Co-ordination
Easy to understand financial literacy modules
with specific target audience orientation (e.g.
children, young adults, women, new workers/
entrepreneurs, family person, about to retire,
retired etc. in the forms of Audio-Video/ booklets
shall be made available for understanding the
product and processes involved. It is also
expected that these modules would help the new
entrants.
Customers shall be made aware of the recourses
available for resolution of their grievances.
About storing and sharing of customer’s
biometric and demographic data, adequate
safeguards need to be ensured to protect the
customer’s Right to Privacy.
Focused and continuous coordination between
the key stakeholders viz. Government, the
Regulators, financial service providers, Telecom
Service Regulators, Skills Training institutes, etc.
to make sure that the customers can use the
services in a sustained manner. The focus shall
be to consolidate gains from previous efforts
through a focus on the improvement of quality of
service of last-mile delivery.

The Personal Data Protection Bill, 2019
● The Bill governs the processing of personal data by:
(i) government,
(ii) companies incorporated in India, and
(iii) foreign companies dealing with personal data of individuals in India.
● A data fiduciary is an entity or individual who decides the means and purpose of processing personal
data. Such processing will be subject to certain purpose, collection and storage limitations.
● All data fiduciaries must undertake certain transparency and accountability measures such as:
(i) implementing security safeguards (such as data encryption and preventing misuse of data), and
(ii) instituting grievance redressal mechanisms to address complaints of individuals.
● Rights of the individual
(i) obtain confirmation from the fiduciary on whether their personal data has been processed,
(ii) seek correction of inaccurate, incomplete, or out-of-date personal data,
(iii) have personal data transferred to any other data fiduciary in certain circumstances, and
(iv) restrict continuing disclosure of their personal data by a fiduciary, if it is no longer necessary or consent is
withdrawn.

The Personal Data Protection Bill, 2019...
● The Bill allows the processing of data by fiduciaries only if consent is provided by the individual.
Circumstances where personal data can be processed without consent:
(i) if required by the State for providing benefits to the individual,
(ii) legal proceedings,
(iii) to respond to a medical emergency.
● The Bill sets up a Data Protection Authority which may:
(i) take steps to protect the interests of individuals,
(ii) prevent misuse of personal data, and
(iii) ensure compliance with the Bill.
● Credit-related data comes under ‘Financial Data’ which is classified as “Sensitive Personal Data” under
the Bill and requires special care mentioned under Chapter IV of the bill.

Pradhan Mantri MUDRA Yojana (PMMY)
● MUDRA Vision: “To be an integrated financial and support services provider par excellence
benchmarked with global best practices and standards for the bottom of the pyramid universe for their
comprehensive economic and social development."
● Micro Units Development and Refinance Agency Ltd. or MUDRA offers refinancing to Banks / MFIs /
NBFCs for lending to micro units having loan requirement upto Rs. 10 lakhs.

Demand Side

Credit Market Segments Demand DriversDigital Credit Market
Indian Credit Market - Credit Offtake
Data: IBEF

Indian Credit Market - Credit Outstanding (RBI)
Data: RBI

Indian Credit Market - NBFC Credit
Data: RBI

Digital Credit Market
Data: Ficci & pwc

Total Retail Disbursement ($ Bn.)
Access to Internet
Researched online
Applied online
$330Bn $730Bn
FY 2018 FY 2023
50%
28%
75%
56%
23% 48%$75Bn
$350Bn
Data: Ficci & pwc
Digital Credit Market - Credit Funnel for Retail Disbursement

Segments
Lorem Ipsum
Lorem Ipsum Lorem Ipsum
Digital Lending
Consumer Finance Business Finance
● Checkout Finance
● Credit Lines
● Personal Loans
● ….
● Term Loans
● Working capital
finance
● ….

Demand Driver - Rising Incomes
● PWC - India will remain one of the fastest-growing economies until 2050.
● Growing per capita income means growing affordability.
● McKinsey - roughly 60 million households could enter the consuming class (defined as households with
incomes greater than $8,000 per annum) by 2025.
Projection: PWC

Demand Driver - Disposable Income Growth
Data: RBI
GDP: Gross Domestic Product
GNI: Gross National Income
NNI: Net National Income
GNDI: Gross National Disposable Income

Demand Driver - Lower levels of private debt
Data: IMF

Demand Driver - New Company Incorporations
Data: The World Bank

Demand Driver - Lower Levels of Corporate Debt
Data: IMF

Supply Side

Business Models Players Funding
Point of Sale
transactions
based lending
Bank-fintech
partnership
models
Invoice discounting
exchanges
Marketplaces
Bank-led digital
models
‘Captive’ models
These companies
provide unsecured
loans to SMEs based
on data of
Point-of-Sales
machines,
Eg. NeoGrowth
These companies
partner with banks
and other financial
institutions and
provide services for
specific segments.
Eg. Indifi, Capital
Float.
These companies
provide working capital
financing by discounting
SME unpaid invoices.
Eg. KredX and
Lendingkart.
Marketplaces are
focused on meeting the
financial needs of
consumers but also by
providing consumers with
the choice of the financial
institution (manufacturers
of
the product). In addition
to this, marketplaces
are also focused on
digitizing the entire sup-
ply chain to provide the
consumers with a
seamless end-to-end
digital experience.
Eg. .Paisabazaar
In this case Banks
leverage a
comprehensive
database to provide
digital lending to existing
customers.
Eg. Kotak Mahindra
Bank’s 811 application
and HDFC Bank’s 10
second personal loan.
In this case, non-financial
players launch lending
solutions to their captive
consumer base.
Eg. Olamoney, Xiaomi
etc.
Business Models
Peer to peer (P2P)
lending
P2P model aims to meet
the demand
of borrowers through
supply from HNIs /
affluent segments as well
as in who have ex-
cess liquidity and are
looking to deploy cash
in as alternative assets
class.
Eg. Faircent

Notable Companies
(Source: Tracxn)
● Lendingkart: Founded in 2014 and with USD $242 million of funding, LendingKart is an online platform that provides
working capital for SMBs in India.
● Capital Float: Founded in 2013 and with USD $154 million of funding, Capital Float is an online platform for consumer
& business loans. The company provides term loans, loans against POS swipes and School Finance to businesses. It
provides checkout finance to consumers.
● NeoGrowth: Founded in 2013 and with USD $95.1 million of funding, NeoGrowth is an online platform for a merchant
cash advance.
● Indifi: Founded in 2015 and with USD $36.1 million of funding, Indifi is an online platform for business loans.
● KredX: Founded in 2015 and with USD $33 million of funding, KredX is an invoice discounting marketplace.
● Faircent: Founded in 2013 and with USD $9.01 million, Faircent is a P2P lending marketplace.
● MoneyTap: Founded in 2015 and with USD $82.4 million, MoneyTap provides credit lines through their app.
● Paisabazar: Founded in 2009, Paisa Bazar is an online loan comparison platform.

Balance Sheet Financing of NBFCs
Data: RBI

VC Funding of Alternative Lenders in India until 2018
Source: FICCI

VC Funding of Alternative Lenders in India until 2018
Source: CBInsights

Impact of COVID-19

Policy Measures Digital Lenders
Relevant Policy Measures
● GOI on 14th May 2020: Extended Partial Credit Guarantee Scheme offered to Public Sector Banks
(PSBS) to:
○ Purchase of pooled assets of rating BBB+ or above from sound NBFCs and HFCs.
○ Portfolio guarantee for purchase by PSBs of Bonds of Commercial Papers (CPs) with a rating of AA or below
issued by NBFCs/ HFCs and MFIs.
● RBI Moratorium on Term Loans - All commercial banks (including regional rural banks, small finance
banks, and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including
housing finance companies and micro-finance institutions) were permitted to allow a moratorium of
three months on payment of installments in respect of all term loans outstanding as on March 1, 2020.
On 23rd May 2020, the moratorium has been extended till 31st August 2020.
● RBI Deferment of Interest on Working Capital Facilities - For working capital facilities sanctioned in the
form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three
months on payment of interest in respect of all such facilities outstanding as on March 1st 2020.
Relevant provisions have been made in the asset classification norms. On 23rd May 2020, this also
been extended till 31st August 2020.
NBFC Balance Sheet

● RBI Easing of Working Capital Financing - In respect of working capital facilities sanctioned in the form
of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending
institutions may, as a one-time measure,
○ recalculate the ‘drawing power’ by reducing the margins till August 31, 2020. However, in all such cases where such a temporary
enhancement in drawing power is considered, the margins shall be restored to the original levels by March 31, 2021; and/or,
○ review the working capital sanctioned limits upto March 31, 2021, based on a reassessment of the working capital cycle.
● RBI on 27th March 2020 - Reduction of the policy repo rate under the liquidity adjustment facility (LAF)
by 75 basis points to 4.40% from 5.15%. The Marginal standing facility (MSF) rate and the Bank Rate
war reduced to 4.65% from 5.4%. On 22nd May 2020, policy repo rate under the liquidity adjustment
facility (LAF) got further reduced by 40 bps to 4.0% from 4.40%. Accordingly, the marginal standing
facility (MSF) rate and the Bank Rate stood reduced to 4.25% from 4.65%. The reverse repo rate under
the LAF stood reduced to 3.35% from 3.75%.
● RBI on 28th March 2020 - Reduction of the cash reserve ratio (CRR) of all banks by 100 basis points to
3.0% of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March
28, 2020.
NBFC Balance Sheet

● RBI Targeted Long Term Repo Operations (TLTRO) - auctions of targeted term repos of up to 3 years
tenor of different sizes for a total amount of up to Rs. 1,00,000 crore at a floating rate linked to the policy
repo rate. A second TLTRO was announced on 17th April 2020.
● RBI - Increase in the borrowing limits in the marginal standing facility (MSF) to 3% from 2% of the
Statutory Liquidity Ratio (SLR). This is intended to provide comfort to the banking system by allowing it
to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window
● RBI Widening of the Monetary Policy Rate Corridor from 50 bps to 65 bps - Under the new corridor, the
reverse repo rate under the liquidity adjustment facility (LAF) is set to be 40 bps lower than the policy
repo rate.
● RBI Deferment of Implementation of Net Stable Funding Ratio (NSFR) from April 1st 2020 to October
1st, 2020.
● RBI - Deferment of Last Tranche of Capital Conservation Buffer from March 31, 2020 to September 30,
2020.
NBFC Balance Sheet

Relevant Policy Measures….
● RBI - reduction of the interest rate on fixed-rate reverse repo under the Liquidity Adjustment Facility (LAF)
by 25 basis points from 4.00% to 3.75%.
● RBI - Reduction in the Liquidity Coverage Ratio requirement.
● RBI - Refinancing Facilities for All India Financial Institutions (AIFIs).
● RBI - Extension of Resolution Timelines under the Prudential Framework on Resolution of Stressed
Assets.
NBFC Balance Sheet

NBFC Balance Sheet Digital Lenders
Impact on Balance Sheet of NBFCs
● CRISIL - NBFCs are expected to face severe liquidity crunch as they are expected to extend loan
moratorium to their borrower while not receiving loan moratorium from the banks they borrow from.
○ 25% NBFCs are expected to face liquidity issues if collection does not pick-up by June 2020.
○ “These NBFCs have Rs 1.75 lakh crore of debt obligations maturing by then.”
○ The problem is made complicated as “NBFCs, unlike banks, do not have access to systemic
sources of liquidity and depend significantly on wholesale funding.”
○ AS Mutual Funds also facing redemption pressure, raising funds from them is also difficult for
NBFCs.
Policy Measures

● Moody's - “Asset quality at NBFIs will significantly deteriorate as economic disruptions from the
coronavirus outbreak deepen an economic slowdown that has been underway in the past few years”.
○ “Asset quality deterioration will worsen liquidity stress.”
○ “Weakening solvency of NBFIs will add to risks to systemic stability.”
Policy Measures

● Moody's - “Economic shock from coronavirus outbreak will exacerbate deterioration of asset quality”
● Moody's - “Companies focused on corporate, real estate, or unsecured retail loan segments will be
most vulnerable”
Policy Measures

● Moody's - “Asset quality deterioration will worsen liquidity stress”
Policy Measures

Short-Term: Impact on Digital Lenders
● Many digital lenders are facing liquidity crisis as loan recoveries deteriorate.
● Smaller lenders are approaching larger and well-funded ones for acquisition.
● The Digital Lending Association of India (DLAI) has approached the RBI for extension of moratorium
support to them from Banks and large NBFCs.
Policy Measures

Long-Term : Impact on Digital Lenders
● It is quite expected that many digital lenders (especially ones with weaker balance sheets) will not
survive not only because of the liquidity crisis but also exposure to less creditworthy borrowers. The
economic repercussions of the lockdown may leave many of the borrowers unable to repay as small
businesses shut down and people lose employment.
● The industry is expected to see increased consolidation where cash strapped lenders exit through
sell-off to larger lenders.
● The pandemic has caused rapid digital adoption which is likely to benefit the industry in the long-term.
● So, while in the short term the digital lending industry is going through a rough patch and many
companies may not survive, in the long-term the industry is expected to see rapid growth as SMEs
recover.
Policy Measures

Thank You

Digital Lending in India

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