India's Fintech Sector Enters Next Growth Phase with Focus on Diversification and Risk Management
Rapid Growth and Emerging Trends
India’s fintech sector, particularly digitally driven Non-Banking Financial Companies (NBFCs), continues to witness impressive expansion. According to a new report by TransUnion CIBIL, the sector is now entering a transformative phase centered around product diversification, enhanced risk management practices, and deeper financial inclusion.
As of December 2024, fintech lenders reported an outstanding loan balance of ₹1.3 trillion—reflecting a 32% year-on-year increase. While fintechs currently contribute only about 1% of the total outstanding industry loan balances, their influence is dominant in specific loan categories, particularly Small Ticket Personal Loans (STPLs).
Dominance in STPL Market
Fintech lenders have captured a striking share of the STPL market. Nearly 89% of personal loans under ₹50,000 were originated by fintech lenders, showcasing their dominance in the micro-credit space. This trend aligns with the industry’s push to cater to previously underserved consumer segments, including younger and rural borrowers.
Push for Product Diversification
The report underscores a significant shift in focus among fintech lenders—from unsecured micro-loans toward secured and higher-ticket financial products. There has been a noticeable increase in business loans and loans against property being issued by fintechs. Business loan originations from fintech lenders now constitute 12% of all such loans across the industry.
These developments reflect fintechs’ growing intent to serve a wider spectrum of credit needs while ensuring more stable revenue streams and diversified risk portfolios.
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Financial Inclusion and Consumer Segmentation
Fintechs are increasingly tapping into younger and rural populations. According to the report, these lenders are succeeding in promoting financial inclusion by reducing average loan sizes across all borrower risk tiers. However, even among customers with top-tier credit scores, the average loan disbursed remains below ₹50,000.
This trend indicates an untapped opportunity for fintechs to offer higher-value products to high-creditworthy customers.
Challenges in Customer Retention and Loan Expansion
While fintechs have succeeded in capturing the STPL market, customer loyalty beyond micro-loans remains limited. The report suggests that fintechs need to venture into higher-ticket personal loans and consumer finance to better meet evolving customer needs and improve brand retention across segments.
Rising Delinquencies and Risk Management
While STPL delinquencies have remained stable, the report flags a rising number of overdue accounts in both business loans and loans against property. This trend highlights the urgent need for robust portfolio monitoring and smarter debt recovery mechanisms.
The report advocates for stronger risk analytics and portfolio management practices to sustain growth, particularly through tools like TransUnion CIBIL’s CreditVision—which offers trended insights into borrower behavior.
Key Recommendations
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Diversify product offerings into higher-ticket personal and secured loans.
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Enhance risk management frameworks with advanced data analytics.
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Strengthen debt collection mechanisms and early warning systems.
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Focus on long-term customer engagement to build brand loyalty.
Conclusion
India’s fintech sector stands at a pivotal juncture. With product-level innovation, stronger risk protocols, and a broader customer base, the next phase of growth is well within reach. However, sustained momentum will depend on the industry's ability to scale responsibly, diversify meaningfully, and manage risks intelligently.
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