The rise of FinTech
In the late 2010s, FinTech emerged as the bold new face of finance, with record breaking investments and massive growth in digital adoption. Startups were onboarding millions of customers at breakneck speed. Loans were being approved in minutes, and investors were excited to back this fresh wave. The formula was defined as lend more, grow faster, and outpace banks. Then came COVID-19, which only amplified this new wave. As people and businesses moved online, the demand for instant credit surged. However, the pandemic also exposed vulnerabilities, including rising defaults, tighter cash flows, and the fragility of unchecked lending models.
Today, the mood has shifted. Strict regulations and cautious investors have now made one thing clear – rapid scale without strong fundamentals cannot last. The sector’s evolution is now unmistakable: growth must be built on smarter, more sustainable lending practices.
Can scale and sustainability go hand in hand?
Unsecured lending in India has seen rapid growth over the past few years. Retail digital loans expanded at a double-digit pace, but so did the risks. Recent reports show delinquency levels in FinTech-driven personal loans have climbed to a six-quarter high. For investors, that’s a wake-up call.
India’s credit gap has become FinTech’s favourite opportunity. But if lenders chase growth without being mindful of repayment capacity, alternate data reliability, and credit discipline, the growing sector risks creating a future NPA crisis. It’s high time that the narrative needs to switch from ‘lending more’ to ‘lending sustainability’.
The RBI has already increased risk weights on unsecured loans to curb froth in the segment. In 2023, RBI Governor Shaktikanta Das warned that unchecked digital interconnectedness can create systemic risks.
What sustainable lending looks like
FinTechs are reshaping what sustainable growth really means. In lending, it’s about scaling responsibly — where accountability and expansion go hand in hand
Leading FinTechs are already shifting gears in four ways:
- Data-driven credit decisions: Moving beyond credit scores to include alternative data, such as employment and address verification, digital transaction history, and behavioural signals, helps lenders assess the borrowers’ repayment capacity more accurately.
- AI-led risk management: Deploying machine learning models to flag fraud, predict delinquencies, and monitor borrower health in rea-time.
- Partnership ecosystems: Collaborating with banks, NBFCs, and regulators to ensure credit is distributed responsibly.
- Customer first design: Offering transparency in loan terms, timely reminders, and flexible repayment options to build trust and reduce defaults.
Why the shifts matter now
The very need of this shift cannot be undermined anymore, as India’s lending market is projected to reach ₹47.4 trillion by FY26. But without sustainable goals, this growth risks being overshadowed by regulatory crackdowns.
-In FY 2024-25 alone, FinTech NBFCs sanctioned 10.9 crore personal loans, totalling ₹1,06,548 cr.
-Yet, loans overdue by more than 90 days reached 3.6% by March 2025- the highest in six quarters.
-The RBI has also tightened rules on Default loss guarantees (DLG), preventing NBFCs from relying on FinTech-provided covers to offset provisioning requirements.
For investors, this means capital now flows to models that can balance growth with risk discipline. For borrowers, it means access to free and transparent services without debt traps. For regulators, it means stability in the lending system. And for FinTechs, it is the only path to survival and relevance in an increasingly crowded market.
The road ahead
The existing credit gap presents a once-in-a-generation opportunity. FinTech has already proven it can deepen financial inclusion, with nearly 66% of loans in 2024 going to borrowers under 35.
To unlock India’s financial future, FinTechs must:
1. Validate alternate data rigorously before using it for underwriting.
2. Build early-warning systems to detect borrower stress before defaults happen
3. Balance exposure across segments to avoid concentration risk
4. Focus on compliance-led growth to stay ahead of RBI’s changing regulations
Conclusion
India’s FinTech story is at a turning point. The first chapter was all about scale and proving that digital lending works. The next chapter must be sustainability: building trust, strengthening risk models, and ensuring that growth is resilient.
Because the FinTechs that win tomorrow won’t be the ones who lend the most. They’ll be the ones who lend smarter.
Views Expressed by Rajat Deshpande, Co-Founder and CEO of FinBox
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