Indian Fintech firms that issue loans to SMEs have welcomed the government’s efforts to provide greater liquidity to the banking system. However, financial technology companies are concerned about the poor monetary transmission by local banks and the capping of interest rates.
India’s non-bank lenders have had to deal with the increased cost of capital during the past couple years. Local companies Capital Float, Flexiloans, Indifi Technologies, and Lendingkart said they’re hoping for monetary transmission by Indian banks to ease, following recently introduced measures by the government. ..
Indian government agencies have attempted to address the country’s liquidity problem and the lenders’ reluctance or unwillingness to issue loans to non-bank peers.
As reported by the Economic Times (ET), the nation’s government has offered an emergency credit line to micro, small and medium enterprises (MSMEs). India has also provided credit guarantees, and capped interest rates for borrowers.
Manish Lunia, co-founder at FlexiLoans, stated:
“The lending rates might be capped at levels where non-banking finance companies (NBFCs) may not be able to do viable lending since their borrowing costs are high. It will be a concern for us and our customers who won’t get the needed stimulus.”
Indian Fintech lenders charge interest rates of anywhere between 16-27% when issuing loans to small businesses.
Lendingkart noted that if the capital is provided at more affordable rates, then capping interest rates should not lead to problems.
Harshvardhan Lunia, CEO at LendingKart, told the ET:
“It is important for MSMEs to stay alive. Margins are going to be lower and it is perfectly fine. It is not for the NBFCs to profit, it is not a normal situation.”
The Reserve Bank of India’s (RBI) preliminary auction last month, under its Targeted Long Term Repo Operation (TLTRO) 2.0 for Rs 25,000 crore (appr. $3.3 billion), was aimed at offering liquidity to SMEs which included NBFCs and microfinance firms affected by COVID-19. However, it reportedly received a poor response because local banks did not want to issue loans during these challenging times.
The Indian government’s credit guarantee is meant to encourage banks to lend to NBFCs.
Alok Mittal, CEO and co-founder at Indifi, remarked:
“The recent targeted longer-term refinancing operations (TLTRO) wasn’t successful. It wasn’t sufficient. This looks more promising, but details are yet to come. Overall, the notion of putting money into the hands of MSMEs is good.”
Sashank Rishyasringa, managing director at Capital Float, added:
“Government has stepped up, if banks step up, we can see success. Fresh and lower-cost liquidity is essential to enable transmission.”
Indian Fintech lenders claim that the government’s current scheme is limited to existing borrowers. The scheme excludes most of the SMEs operating in the country.