NBFCs snap lines of credit to fintechs

Mumbai, Oct 17: Fintech lending firms have been hit with a triple whammy. The latest is the drying up of credit lines from finance companies that are themselves facing a liquidity crunch. Last week, it was Google’s decision not to allow apps to scrape text messages — a feature fintechs were using to assess creditworthiness based on reminders from banks. The biggest blow was the government denying them access to the Aadhaar database, which enabled remote customer acquisition and authentication.
Fintech lenders are new-age, non-banking finance companies (NBFCs) that distribute loans using software. A computer programme assesses the borrower’s creditworthiness and transfers funds directly to his account. According to sources, one fintech lender — which had grown its loan book by several hundred crores in a year — was facing a liquidity mismatch, but had barely managed to meet its repayment obligations. The company has since tempered its growth targets.
Fintechs had been finding it easier to raise funds from NBFCs who have been quicker in releasing lines of credit. However, since the IL&FS crisis, NBFCs have seen their cost of funds soar by 150 basis points (100 bps = 1 percentage point). In some cases, the finance companies have withdrawn the line of credit that was earlier sanctioned. A finance company, which is part of a business group, that has defaulted on its obligation is understood to have withdrawn lines of credit to fintech firms.