Fintech NBFCs may need to reassess their business models and moderate loan disbursements due to tighter funding conditions and regulatory warnings on growth strategies, India Ratings (Ind-Ra) has cautioned. They should exercise caution in expanding their unsecured consumer lending in FY25, considering the rising funding costs, challenges in fund mobilization, and pressure on asset quality amid slowing growth.
In a statement on Wednesday, India Ratings (Ind-Ra) indicated that fintech NBFCs are expected to tighten their lending parameters, adjust risk management frameworks, revisit their business models, and revise provision coverage levels during the current financial year (FY25). This adjustment could extend the time required for some fintech NBFCs to achieve operational breakeven, as internal accruals are likely to continue lagging behind assets under management (AUM) growth in the medium term.
India Ratings (Ind-Ra) noted that, given the effective tenor of most loans is less than two years, a slowdown in incremental disbursements would directly impact reported asset quality ratios.
From Growth to Consolidation
During FY23 and much of FY24, large NBFCs partnered with fintech players to offer unsecured loans to a new customer base. Traditionally operating in different segments, these NBFCs ventured into this area for better yields and improved portfolio granularity, according to the ratings agency.
NBFCs have been cautious about limiting the proportion of their unsecured loan portfolios to a certain level due to the inherent risks. The credit cost behavior for these unsecured loans is expected to differ from that of the secured loan portfolios they maintain on their balance sheets.