As RBI frowns, fintechs pivot to secured loans

As the Reserve Bank of India (RBI) tightens screws on unsecured lending, digital lenders are diversifying into secured lending with products like micro loans against property, business loans for MSMEs and green financing. While some digital lenders are exploring the phygital mode to expand their secured loan book, others are opting for feet on the street with a loan-at-home option. However, lenders complain that secured lending is turning out to be a cumbersome process that requires physical verification and collateral checks.

“While the regulator has not explicitly asked anyone to go slow on unsecured loans, the writing on the wall is clear; hence as an industry, we are moving towards secured lending,” said the CEO of a Bengaluru-based digital lender. “Over the next few years, we aim to make at least one-third of our loans secured.”

Fintechs are exploring the option of opening physical branches, hiring more feet-on-the-street for physical verification and authenticating collateral. These fintech lenders are considering a foray into micro business loans, loans against property, home loans, solar loans, EV financing, commercial and passenger vehicle loans. The maximum loan limit could be ₹1 crore.

“We are aiming to hire a lot of feet on the street to offer loan-at-home options, while some peers are also exploring opening branches,” said the chief of another fintech lender. “Though secured lending is a much more cumbersome process because it requires physical verification and collateral checks.”

The RBI has repeatedly flagged heightened risks in the unsecured segment asking lenders to exercise caution while extending personal loans for consumption purposes. Amid signs of stress in the unsecured loan segment, the RBI had increased risk weights on unsecured consumer credit and bank credit to NBFCs in November last year.

These pre-emptive measures moderated consumer loan growth from 29.6% in October 2023 to 12.9% at the end of October 2024, while bank credit to NBFCs declined from 18.3% to 6.4% over the same period. Growth in credit card outstanding fell from 28% in October 2023 to 16.9% at the end of October 2024.

The RBI measures on increasing risk weights on certain segments of consumer credit have pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards.In the June edition of the financial stability report the regulator had raised a red flag over consumer loans, especially personal loans, a segment where more than half the borrowers are repaying at least three loans simultaneously. The RBI had said that delinquency levels among borrowers with personal loans below ₹50,000 remained high. It had also said that vintage delinquency, a measure of slippage, remained relatively high in personal loans at 8.2%.