Digital lenders seek measures to ease the liquidity situation in the budget

Topics Budget 2020

Fintech companies operating in the digital lending space are expecting measures in the Budget that they say will improve cash flow for small and medium enterprises (SMEs).


Steps to improve the liquidity position of digital lenders, which have seen a rise in cost of capital in the past year, will also activate the credit demand in the digital lending space, industry officials said.


“Facilitating debt flow to SMEs via digital lending non-banking financial companies (NBFCs) will help unlock capital for borrowers at the grassroots level,” said Gaurav Hinduja, co-founder and managing director (MD) at Capital Float. “Budgetary provisions for larger banks and NBFCs to co-originate loans with new-age fintech lenders would spur SME growth across the country.”


The Amazon-backed NBFC, which tied up with Japan’s largest financial institutions Credit Saison, said a favourable tax regime with regard to Employee Stock Options (ESOPs) would complement the growth of the fintech start-ups.


Online lenders, which are betting big on the unsecured personal loan segment, said deduction in income tax rates can improve the demand situation.


“Increase in personal income tax exemption limits should spur demand and consumption, providing a much-needed stimulus. We also hope this year’s Budget will continue with the momentum started with 'Start-up India' that enabled self-certification, income tax exemptions, rebate in filing patents for new companies," said Praveen Agrawal, MD at OakNorth India.


Post the Infrastructure Leasing and Financial Services (IL&FS) crisis, many digital lenders have seen an increase in their cost of capital in the past year by more than 150 basis points, which has directly impacted the bottom line of these firms. Even many firms have seen a fall in debt flows from banks and traditional NBFCs.


“Despite the fall in repo rates, the transmission of rate cut from the banking system remains poor. This is the reason we have seen a rise in our cost of funds in the past year,” said a co-founder of a Delhi-based fintech lender, who did not wish to be named. “So, the Budget should ease this situation by earmarking a special fund for digital lenders.”


Though the digital lending space is a fraction of the banking system in size, it is growing very fast as technology-enabled platforms make the process faster and hassle-free. However, the industry is going through a lot of disruption post the IL&FS crisis and imposition of restriction on using the Aadhaar database for completing know-your-customer (KYC) process. Additionally, sector-focused lenders or lenders which lend to SMEs are in bad shape mainly because of the liquidity crunch faced by the ecosystem.


“The allocation of distressed asset fund of Rs 5,000 crore, along with the activation of the proposed ‘Fund of Funds’ of Rs 10,000 crore to encourage PE and VC firms looking at investing in the MSME segment, will bring respite to both the MSME segment and its key stakeholders,” said Sampad Swain, chief executive and co-founder at Instamojo, a Bengaluru-based fintech and financial services provider.


Upasana Taku, co-founder of MobiKwik, said with the recent developments in the Indian digital payments segment and the onset of zero MDR (merchant discount rate) policy, it was evident that the Budget would encompass policies tailor-made for the segment. She said policies like zero MDR would have an impact on the digital payments industry.

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