Tech Titans seek Foothold in India's $1 Trillion Digital Loan Market

The lending landscape has evolved dramatically over the past few years. The change brought about owing to the fast adoption of digitization in the BFSI sector has led the Indian digital loan market to grow at a CAGR of around 11.9 percent (2021 - 2026). Traditional lending is still prevalent in many parts of the world. However, the advantages provided by digital solution providers are progressively paving the way for organizational adoption of digital lending solutions and services.

Furthermore, various technological improvements, such as the widespread usage of smartphones and integrating Artificial Intelligence, Machine Learning, and cloud computing into their services have resulted in a rise in the acceptance of digital banking across a variety of end-user sectors.

The digital lending market's competitive landscape is fragmented due to the presence of multiple solution providers, none of them has a majority share of the market. Several innovations are being implemented by industry participants in order to improve their offers and acquire maximum market traction.

Taking advantage of the absence of a strong player in the segment, tech giants have been making moves to claim stakes in the giant market pie. Companies including Facebook Inc, Xiaomi Corp, Amazon, and Google are all competing for a share of India's digital loan market, which has been predicted to grow to a $1 trillion sector in the near future. As they seek a footing, many corporations have either stated plans or are partnering with small Indian lenders.

Following the rise in online transactions caused by the pandemic, tech giants are aggressively focusing on India's digital payments business. According to a Bloomberg estimate, digital financing is predicted to reach $350 billion by 2023, and $1 trillion in five years beginning in 2019.

This month, Facebook said that India would be the first country where the company will launch its small business lending programme, which will provide loans to enterprise who advertise on its platform through a partner.

The loans will range from Rs 500,000 ($6,720) to Rs 5 million, with interest rates ranging from 17 percent to 20 percent and possibly without collateral.
Manu Jain, CEO, Xiaomi India, also stated that the company intends to offer loans, credit cards, and insurance products in collaboration with some of the country's largest lenders as well as startup digital lenders.

Similarly, just made its first investment in wealth management segment, by backing upcoming fintech firm,Smallcase Technologies. Faering Capital, Premji Invest, Sequoia Capital India, Blume Ventures, Beenext, DSP Group, Arkam Ventures, WEH Ventures, and HDFC Bank also participated in the $40 million round.

Google, owned by Alphabet Inc., is likewise stepping up its game. After delivering wealth management products like digital gold and mutual funds through its famous Google Pay platform, it has now partnered with small Indian lenders to create time deposits for its users.

During the pandemic, digital lending found various growth prospects and adoption, particularly among SMEs. For example, IndiaLends announced Digital Lending 2.0 in April 2020, which includes a range of touchless and contactless goods such as loans, insurance, and a line of credit. During and after the nationwide lockdown, the new service is planned to give its customers with rapid and effective financial solutions, paving the way for a new normal.

After online transactions increased during the pandemic and traditional lenders were wary due to an increase in bad debt, India's digital payments business has piqued the interest of some of technology's largest names. According to Boston Consulting Group predictions, digital financing will triple to $350 billion by 2023 and surpass $1 trillion in the five years after 2019.

“The payment business hardly makes any money, but lending makes a lot of money,” said Saurabh Tripathi, Managing Director & Senior Partner, BCG’s financial institutions practice. “Indian consumers are waiting for more appropriately designed digital experiences and many players are jumping at this opportunity.”

While India's lending sector has enormous potential, it also has substantial hazards. For the second year in a row, the country's bad loan ratio is predicted to grow to 11.3 percent by March, making it the poorest performance among big economies.

In fiscal year 2020, India had a gross non-performing asset (GNPA) to total advances ratio of more above 8 percentage, and it was 7.5 percent as of September 2020. While there was a drop from the previous fiscal year, the country was expecting an increase in bad debts as a result of the coronavirus (COVID-19) epidemic and lockdown.

The Reserve Bank of India anticipated possibilities for the fiscal year 2022 till September 2021 based on the value for September 2020. Under the baseline scenario, the GNPA-ratio would reach 13.5 percent, setting a record high. Under medium or severe stress, the GNPA-ratio would range from 14.1 to 14.8 percent.
In addition to tackling debt collections by digital enterprises, the Reserve Bank of India intends to supervise online lenders, which comprise over 300 startups.