Couple of days back; I posted about P2P lending and its India Feasibility – got mixed reponse from readers. I thought to bounce some more facts/findings from Deutsche Bank Research Report.
Interesting to note:
1.) Less default rate for borrowers who are member of some group (remember SHG of Indian MFI industry)
2.) At present; lenders choosing only low risk borrowers with credit rating AA. High risk borrowers still untapped
3.) Competition among P2P platforms has resulted in lazor thin margins for low risk borrowers.
So mix reactions. Check out some of the companies and their distributed amount. Would love to hear futher thoughts on the report.
Regards
Mukul
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Vikas – I think we can do dedicated seminars on some of such ideas where all of us fighting to each other armed with lots of ideas and numbers. Not Bad
When I quoted Public Sector Banks (PSB’s) it was not as a serious competition. PSB’s and particularly SBI are able to lend at such rates for they are sitting on almost zero cost government funds that give them a huge float.
What you say about edu-loans is also correct. These are sectoral lending targets that have to be met and the PSB’s make sure that they have adequate cover there. I had surrendered insurance policies while taking an edu-loan that too after my mother who was an employee in the same bank gave a guarantee.
They are not a serious competition.
For all practical purposes the competition is with Private Sector Banks and then the NBFCs.
I also agree that the entire market is not tapped and the systemic inefficiencies in India always offer a window of opportunity. Even in the ‘better’ borrower profiles.
I did not understand this part – “There is a cool spread of 300-700 basis points even if lenders lend at FD + 200basis and borrower gets a rate of say 20%”
The 24-25% that I was mentioning was a reducing balance rate – means roughly 12-12.5% fixed rate. Thats FD + 250/300 basis points.
Another point I wish to understand is the cost for the P2P site in terms of getting and profiling customers.
A large part of the Bank lending cost goes into acquisition and servicing. This would mean the multiple layers of on-rolls staff, off-rolls teams, direct sales agents, marketing activities, special schemes, incentives, etc. On the processing side it is the credit behemoths that are built to process each application, escalate deviations, file all papers and finally post dated cheque processing. We are not even considering delayed payments so far.
The site eliminates a large number of these costs, but what are the costs of operation for the site?
CIBIL and the likes of it are here but will we have a comprehensive database of all categories of borrowers even in 12 months, not sure.
More on beating CIBIL later.
ps: please pardon my long comments. there is just so much to say.
You are right Mukul. In India although there is no way to identify a AAA person but in 6months there would be. Credit bureaus have got license and they are setting up shop .