Fintech Lending Boom in India

In India, lending has emerged as a significant revenue stream for fintech startups. Both large and small fintech companies are increasingly turning to loan distribution, either through their own platforms or third-party lenders like banks and NBFCs. While many growth-stage fintech startups are aggressively lending, they often face significant losses on a consolidated basis. However, InCred, an eight-year-old fintech firm, stands out as an exception, with its operating revenue surging by 48% to Rs 1,267 crore in FY24 and profits rising by 160% to Rs 316 crore in the same period.

InCred’s Expansion and Offerings

Since its inception in 2016, InCred claims to have extended credit to 350,000 borrowers. The InCred group comprises three companies: InCred Finance, InCred Capital, and InCred Money. To gain insight into InCred’s growth across various segments, including startup investments like Oyo and collection strategies, Entrackr interviewed the company’s founder and CEO, Bhupinder Singh. Here are the key highlights.

Asset Under Management Growth

In FY24, InCred’s assets under management (AUM) grew by 49%, closing the fiscal year with over Rs 9,000 crore in AUM. This is distributed across personal loans, which make up 44% of the AUM, micro, small, and medium enterprises (MSMEs) loans contributing 35%, and educational loans accounting for 21%, including third-party capital.

Segment Growth in FY24

In FY24, InCred saw substantial growth across its three main segments: personal loans increased by 57%, educational loans surged by 86%, and MSME borrowing grew by 32%. This significant rise in educational loans is attributed to a strong preference for studying abroad for better exposure and growth prospects, coupled with increased awareness about universities and courses through social media and the internet.

Strategic Equity Investments

InCred has ventured into equity investments in startups through InCred Capital, focusing on identifying attractive opportunities in private companies. The firm invests in startups that are available at reasonable valuations and exhibit long-term growth potential. In addition to InCred Capital, the company has a private equity fund that provides growth capital to startups and other businesses.

Oyo Investment Insight

InCred Capital recently invested in Oyo at a $2.38 billion valuation, based on its fundamental thesis of offering an attractive risk-return profile for its wealth clients. The firm believes that Oyo fits this category, presenting an opportunity for long-term value creation.

Efficient Collection Strategies

Collection is a critical aspect of any lending process, whether traditional or digital. InCred addresses this challenge with a strong focus on risk and analytics, followed by proactive collection strategies. The company employs over 150 pan-India collections teams across various products, utilizing multiple modes depending on product-specific requirements and customer delinquency levels. For early defaulters, techniques like tele-calling are used to educate them on the implications of defaulting. For late-stage defaulters, the focus shifts to minimizing losses through field visits and vendor engagement. InCred also employs mechanisms like escrow accounts for superior collections. As of March 2024, InCred’s NNPA stood at 0.8%, one of the best in the industry.

Successful Merger with KKR Financial Services

In 2022, InCred merged with KKR Financial Services. This reverse merger allowed InCred to acquire KKR’s corporate loan book, providing a profitable exit for KKR and enabling them to be part of InCred’s long-term lending growth story. For InCred, the merger was primarily an equity-raising exercise, boosting its net worth threefold to over Rs 3,200 crore by December 2023. The company quickly wound down the corporate loan book to focus on building a granular retail franchise, aligning with its broader vision for InCred Finance.