The Reserve Bank of India (RBI) has reported a steady decrease in the average size of personal loans given out by fintech companies over the past two years. According to the RBI's report, titled “Currency and Finance (RCF) for the year 2023-24,” the average loan size fell to INR 9,861 in the first half (H1) of the fiscal year 2023-24 (FY24), down from INR 10,642 in the entire FY23.

Key Trends and Figures

• Decline in Loan Size: In FY22, the average size of personal loans disbursed by fintechs was INR 10,955. By FY23, it had dropped to INR 10,642, and it further decreased to INR 9,861 in the first half of FY24.
• Rise in Small Loans: Fintechs are primarily issuing smaller loans. In FY23, 68% of personal loans were for amounts less than INR 5,000. The average loan size by fintechs around this time was approximately INR 11,000.
• Young Borrowers and Rural Areas: The decrease in loan size coincides with a rise in younger borrowers and more loans being issued in rural areas.
• Increase in Female Borrowers: There has been a rise in female borrowers taking digital personal loans. The proportion increased from 12.9% in FY22 to 13.9% in FY23, and to 14.2% in H1 FY24.
• Urban vs. Rural Borrowers: In H1 FY24, 56% of borrowers were from urban or metropolitan areas, 33% from rural areas, and 11% from semi-urban regions.

Concerns and Regulatory Actions

The RBI has raised concerns about the high levels of delinquency, particularly for small loans below INR 50,000. Delinquency refers to borrowers failing to repay their loans on time.

• Monitoring Unsecured Lending: Due to the rising delinquency rates, the RBI emphasized the need to closely monitor the unsecured lending category.
• Slower Growth in Personal Loans: The growth rate of personal loans slowed to 30% by the end of March 2024, compared to 31% the previous year.
• Increased Risk Weightage: In November last year, the RBI increased the risk weightage for unsecured consumer credit from 100% to 125%. This meant higher lending costs for such loans, prompting many fintechs to reduce their focus on smaller loans.
• Impact on Startups: Companies like Paytm, which faced issues with asset quality, had to pause their small personal loans business and postpaid portfolio.

Regulatory Changes

The RBI has been paying close attention to the digital lending sector. In April this year, it released a draft framework to regulate the aggregation of loan products by lending service providers (LSPs). This framework aims to provide more oversight and ensure the sector operates fairly and transparently.

In summary, the RBI's report highlights a significant trend of declining average personal loan sizes by fintech over the past two years, influenced by the rise in younger borrowers and increased lending in rural areas. Alongside this, there has been a notable rise in female borrowers. However, concerns over delinquency rates and regulatory changes are shaping the future of the fintech lending sector in India.