In a recent revelation, Mumbai-based Non-Banking Financial Company (NBFC) Incred Finance has sounded the alarm over Small Ticket Personal Loans (STPLs), expressing heightened industry concerns due to associated risks. The company highlighted that traditional personal loans, with larger ticket sizes, undergo stringent underwriting processes, resulting in improved risk performance compared to their smaller counterparts.
According to Incred Finance, standard personal loans have witnessed a positive trend in risk performance, improving from 1.3% in March 2021 to 0.8% in March 2023. In contrast, STPLs have experienced a concerning slip, with risk performance escalating from 6.6% in March 2021 to 11.4% in March 2023.
The surge in STPL disbursements is also causing unease, rising from approximately 57 lakh in March 2021 to a staggering 204 lakh in March 2023. Conversely, loans with a ticket size exceeding Rs 25,000 increased from 3,600,000 to 6,800,000 during the same period.
Prithvi Chandrasekhar, CEO of Consumer Finance & Risk Analytics at InCred Finance, assured that their personal loans portfolio, predominantly consisting of regular personal loans with an average ticket size over Rs 2,00,000, continues to exhibit strong risk performance. Chandrasekhar emphasized a conservative approach to risk management, positioning Incred Finance favorably in navigating the challenges posed by high-risk areas like personal loans.
While acknowledging the genuine customer need addressed by STPLs, Chandrasekhar anticipates a temporary shrinkage in this segment as risk correction measures are implemented. However, he remains optimistic about the rebound of the segment and is confident in the continued robust and secure growth of Incred Finance's personal loans portfolio.
Despite projecting a 15 to 20 percent annual growth in the consumer lending space in India, Incred Finance anticipates a market-wide shift away from STPLs. This shift is attributed not only to increased risks but also in response to the Reserve Bank of India's decision to raise risk weights for unsecured personal loans. Chandrasekhar predicts that the industry, including both established NBFCs and younger players like Incred Finance, will likely limit their exposure to the STPL category.
As the industry evaluates the impact of these changes, the market is expected to naturally respond, with a foreseeable decline in STPLs. Incred Finance, as a balance sheet player, is positioned to adapt to these market dynamics, ensuring sustained growth while maintaining a cautious approach to risk management.