Managing The Risks Of Digital Lending

As more and more fintech players enter the space, prioritising risk and compliance will be the important aspects

- Sanjay Doshi

TECHNOLOGY HAS BEEN the crux of the Indian banking system and the advent of Covid-19 has fuelled the shift of business models from ‘physical’ to ‘digital’. The journey of innovation, which started with internet banking and digital means of payments, graduated to account opening, digital lending, wealth-tech and invest-tech solutions, and now has moved close to digital banks with the advent of neo-banking models/‘bankingas-a-service’ platform providers. With rising customer demand for virtual banking, increasing significance of superior customer experience, growth of the ecommerce market, and the rise of the fintechs, digital has almost become synonymous with banking in current times. It has also made banking accessible to the non-banked/under-banked.

The lending business has also been influenced by digitisation. A riveting evolution of digitisation across the lending landscape in India over the past few years can be attributed to increasing internet penetration, amplified smartphone usage, emergence of advanced technologies, a favourable regulatory environment, and rising customer expectations, especially after the onset of the pandemic.

With the advent of diversified fintech players and digital lending models, the number of loans disbursed via digital went up by nearly 12 times by the end of 2020. Private banks and NBFCs play a major role in the new lending ecosystem and accounted for 55 per cent and 30 per cent of loans disbursed through digital channels, respectively, in 2020. Though private banks have a major share in digital lending, NBFCs have a higher proportion of lending via digital mode (>10 per cent) as compared to banks (~0.2-0.3 per cent), according to the Reserve Bank of India’s (RBI) Report of the Working Group on digital lending, including lending through online platforms and mobile apps.