The Indian economy is expected to grow by 9.2% in the current fiscal year and 8-8.5% the following year. India has one of the fastest growing major economies in the world, with a GDP of $3 trillion. Priority sector lending is often cited as an important factor contributing to the growth of NPAs. Although stimulus programs are needed to revive India’s economy, sustained medium-term growth depends on debt reduction. According to a recent assessment by RBI experts, bank credit has accelerated along with rising debt.
The need for loans to priority sectors and their contribution to economic recovery
MSMEs, which employ around 40% of the workforce, are essential to economic development, job creation and local growth, but they require access to finance that is both accessible and affordable. For India’s economy to grow to $5 trillion, policy adjustments must be made to the financial sector to at least halve the cost of credit to small businesses. If these businesses have access to affordable credit, they can be the engines of growth, employment and development in their communities. In India, lending to priority sectors has increased significantly over time. Funding for priority sectors increased at a compound annual growth rate (CAGR) of 25% for agriculture, 20% for exports and 23% for micro, small and medium enterprises between 2001-2002 and 2011-2012. (MSME). Although the current share of digital loans in the total amount of credit granted by the banking sector is insufficient to have a substantial impact on financial stability, the growing momentum offers significant growth prospects.
Expanding Smart Collection and Collection of Debts to Accelerate Growth
Debt collection has always been a violent or harassment-inducing process that makes the collection target feel unwelcome and scared. Many stories of abuse and suicides linked to loan collection agencies have been published because of this pervasive problem. However, there is a more efficient, dignified and humane solution that makes debt collection a win-win for lenders and borrowers. Debt collection has evolved over time and benefited from critical technical advances. Banks and NBFCs have started implementing technology solutions to better serve customers and create a sustainable lending/borrowing relationship between financial institutions and borrowers, ushering in a new phase of debt collection.
However, as India’s digital lending ecosystem grows at historically high rates, defaults are also increasing. An increase in NPAs was observed for NBFCs and banks due to increased credit disbursements. Fintechs ensure efficient customer collection with reduced human dependency, lower bounce rates and increased self-checkout by implementing big data analytics and machine learning in an era bad debt escalation and haunted debt collection proceedings. In the process, he drives the penetration of financial independence into rural pockets of the country with financial advice and services that empower customers and improve willingness to pay with technology solutions such as:
- Big Data and ML-based platforms that enable digital channels and conversational vernacular AIs to perform various collection-related activities, resulting in increased client portfolio reach and contact, using advanced analytics, further reducing collection effort/cost by proper scoring and removing redundant steps and therefore leading to increased customer contact conversions
- One-stop BOT solution for banks and farmers, where banks don’t have to worry about loan payments to farmers with Kisan credit cards. It is an innovative one-of-a-kind application that brings together farmer data such as due date and outstanding amount using language features for better penetration.
There have been tremendous improvements in efficiency, productivity, quality, inclusiveness and competitiveness with the growth of financial services, especially in digital lending. Although the current share of digital lending in the overall amount of credit granted by the banking sector is insufficient to significantly affect financial stability, the potential for growth in expanding momentum is significant. The proportion of digital loans to total credit is expected to increase significantly in the future due to the availability of digital financial services, technological advancements, and profitable business models. In addition, banks and fintechs are rapidly innovating the way they source, process and deliver credit to make it more borrower-friendly as MSME forums demand simplicity from lending programs to open channels of formal credit. Recently, the Ministry of Finance reiterated the importance of bank friendliness. Taken broadly, early indications of increased credit growth should become more pronounced, helping the economy maintain its development trajectory despite external and geopolitical threats. In FY23, these risks are expected to diminish, creating a favorable environment for accelerating economic recovery.
The opinions expressed above are those of the author.
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