Digital loans are no more free-for-all like in pre-COVID days : Lendingkart

 

Exclusive interview | Digital loans are no more free-for-all like in pre-COVID days: Lendingkart CEO Harshvardhan Lunia

The digital lender has tightened its credit underwriting standards and slowed down lending to borrowers with poorer scores and the sectors hit worst by COVID.

COVID-19 has presented unprecedented challenges for digital lenders who typically lend to segments untouched by traditional banks and non-banking financial companies. Collections have taken a major hit. For Lendingkart, a digital lender, the scenario has not been different. While in the months of April and May the company saw a 10 percent dip in collections, things have improved in June, said Harshvardhan Lunia, co-founder & CEO, Lendingkart, in an exclusive interview to Moneycontrol.

Lunia said that Lendingkart has tightened its risk filters and slowed down lending to riskier borrowers and sectors affected by the pandemic. The company has provided up to 18 percent on the loans it had restructured in 2020 as abundant caution. In the current year, only a few hundred of Lendingkart’s one lakh-odd loan accounts have put in requests for restructuring, Lunia said. He spoke on how his client base has weathered the Covid tsunami and Lendingkart’s approach to lending and underwriting in the current scenario.

How is life for digital lenders in the COVID second wave?

The wave started suddenly, peaked very fast and it is now slowing down very fast, too. We only have digital collections. We take neither cash nor cheques from our borrowers. Hundred percent of our borrowers are on the National Automated Clearing House and it’s a direct debit from their accounts. When the lockdowns started around mid-April, a lot of our borrowers had made their payments. Secondly, they had funds in their accounts. So April and May were reasonably okay. We did see a 10 percent overall dip in our collections. As opposed to the 92-93 percent levels of collections we normally see in a month, it fell to 84-85 percent. But, there was no drastic dip. We were worried that if this prolongs, they may get worse, but thankfully, things are coming back to normal.

Have things improved in June so far?

In June, the case counts have been falling. In our company of 500 people, we had 70 cases in April, which came down to 25-26 in May and in June, we have seen just one case. This year, the scenario is better than last year because there was no national lockdown. Some people managed to make their business work and manufacturing industries were not shut down this year. If the monsoon is as predicted, we will have demand coming back in the eight-nine months left in this year. In terms of collections, June has been like March for us and that was one of our best months.

There has been a document doing the rounds in social media, suggesting that you have significantly jacked up provisioning in the March quarter -- up to five times year-on-year. Is that correct?

We actually doubled our profits compared to last year, when we had Rs 56 crore of profits before we provided for COVID, and this time it was Rs 96 crore. At the group level as well, last year we had made Rs 5 crore and this time we made Rs 45 crore. What people may have been discussing is that we had also restructured portfolios, where we had conservatively provided a little more. We didn’t go up to five times.

But you must have provided aggressively, given the environment.

Normally, we have write-offs in the region of three-four percent in our book. The RBI had suggested that you should provide five percent more than that. So if we normally would write off four percent, then we would have to provide nine percent of our overall restructured book. We went ahead and provided more than two times that -- close to 18 percent. We were very clear that this is a tough environment and that’s why we went ahead and provided. Maybe later on when we collect it back, we can obviously put it across as profits. Rather than having higher profits we thought it better to create more provisions.

How is the performance of the restructured loan portfolio?

We noticed two things last year. One, we were able to connect with 90-95 percent of our customers due to our digital connectivity. Moreover, our customers belong to the younger age group, so they were less affected by COVID. While the pandemic has affected people’s cash flows, it hasn’t hurt their ability to earn in future. Their shops or physical infrastructure are not getting destroyed, as they would in case of, say, a flood. So we don’t see much of a problem there, especially because the intent of the customers has not changed.

Do you see any part of your book getting restructured under the new scheme?

We are clear that if a few of our customers reach out to us and want restructuring, we will go ahead and offer it to them. There are not that many requests and we are evaluating the ones that we are getting. It will not be measurable as a share of the book. It will just be a few hundred applications out of our one lakh live loans. As compared to last year, people are less worried this year.

Have you tightened underwriting practices after the pandemic outbreak?

Yes, that was required. Last year as well, we had tweaked our models because certain geographies have had a far tougher experience with Covid than others. Delhi, Mumbai and other metro cities have had far more struggles compared to tier-III or tier-IV centres. But this year the reach of the pandemic was limited as compared to last year. Wherever we saw cases being high, we stopped. Certain industries have also gone through a tough time, such as hospitality, travel and tourism and even real estate for some time. We anyway restricted the share of those industries in our book. During October to March, we also restricted the number of applications we would entertain with customers with lower scores. This will continue this year, too. It will not be a free-for-all like pre-COVID days. Risk assessment and credit assessment will be very important.