Daybreak - Sachin Bansal’s loan offer: take money, let Navi peek into your bank account for years

Episode Date: August 25, 2024

If you’ve ever taken a loan from a non bank or an NBFC, the EMI is usually auto-debited from your account every month. But if you missed a payment, you know what usually goes down. You are inundated with phone calls from your lender and maybe agents even start visiting your home. Not an ideal situation for you or your lender.But now, your lender can just monitor your account and deduct the money as soon as it comes into your account…all thanks to that auto-debit permission you granted. Earlier, only a bank could do this when it lent money to its account holder. But now non-banks can do it, too. A fintech executive told The Ken that this tool will soon become business as usual in every lender’s tool box. But things are still not there yet since the banks are not predictably sharing the statement data or their servers are down.And here’s where account aggregators come into the picture. These aggregators are a newly-created class of licensed companies by the Reserve Bank of India. They basically help businesses exchange financial information about a user after taking the user’s consent. Meanwhile, Navi Finserv, a four-year-old non-bank, is quite particular about how fast it can help its users take out a loan. Navi’s co-founder and CEO Sachin Bansal—who previously co-founded the Flipkart —believes “banking should be as easy as going on Swiggy and ordering food”. So to amp up both disbursals and collections, Navi and others like it are counting on account aggregators. But being able to access a borrower’s bank statement at any given time is a powerful collection tool.And the problem is how Navi is using this power.Tune in. If you're interested in working for The Ken's podcast team, apply here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. If you've ever taken a loan from a non-bank or an NBFC, the EMI is usually auto-debated from your account every month. But if you've missed a payment, you know what usually goes down.

on. You're inundated with phone calls from your lender and maybe agents even start visiting your home. Not an ideal situation for you or for your lender. But now your lender can actually just monitor your account and deduct the money as soon as it comes in. All thanks to that auto debit permission you granted. You see, earlier only a bank could do this when it lent money to its account holder. But now non-bend banks can do it too. A fintech executive told again that this tool will soon become business as usual in every lender's toolbox. But things are not quite there yet because banks are either not predictably sharing the statement data or their servers are down. And here is where account aggregators come into the picture. These aggregators are a newly created class of licensed

companies by the Reserve Bank of India. They basically help businesses exchange financial information about a user after taking the user's consent. Navi Fincerv, for example, which is a 4-year-old non-bank, is quite particular about how fast it can help its users take out a loan. Navi's co-founder and CEO Sachin Mansell, who previously co-founded Flipcott, believes that banking should be as easy as going on Swiggy and ordering food. So to amp up both disbursals and collections, Navi and others like it are counting on account aggregators.

But being able to access a borrower's bank statement at any given time is a powerful collection tool. And the problem now is how Navi is using this power. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dharma and I don't chase the new cycle. Instead, every day of the week, my colleague Rahal Philippoz and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 26th of August. To make loans easy and quick, Navi wants access to some of its borrowers' bank statements. Which sounds fair until you find out that they want this access on an everyday basis.

This is way more than what other lenders have been asking for. more than what is recommended. In fact, it is more than what is really necessary for monitoring loans. And it does come across as a bit aggressive to many. But for Sachin Ban Sal, it is plain ambition, especially after Navi was denied a banking license by the Reserve Bank of India. Also, not to forget, the failed IPO. He has a point to prove.

So, he's tweaking, fussing, experimenting and doubling down on any metric that has the potential to grow. Anything that will take the company to grow from its $1.3 billion plus loan book of mostly personal loans. And for this, Navi is counting on account aggregators. Since these aggregators went live back in 2021, they saw very slow growth. But lately, they seem to have started picking up with more than 500 financial institutions becoming a part of it.

In June 2024, a total of 16 aggregators, which includes the likes of One Money and Anumati, generated over 88 million consents from borrowers on behalf of various financial institutions such as lenders, personal finance management companies and investment advisors. This was seven times more compared to last year. Lenders like Bajaj finance, HGFC Bank and IIFL are of course among the top users of these account aggregators because of their size. But Navi, despite having a much smaller loan book comparatively, also sits among the top five users of these aggregators. If you look at the consent form for a loan on Navi, you will see that Navi seeks to keep your bank statement data

for as long as eight years when you're applying for a loan. And if you do get a loan, it wants to monitor it every single day for those eight years. A senior account aggregator executive told my colleague Arundati Ramanathan that this is just excessive. Another even went a step ahead and called it unethical. They said just because someone needs money, lenders are exploiting them by taking more data than they need. A former Navi employee told us that lenders can also get away with it easily because most borrowers, just weren't alone. They don't care about permissions that are being sought or what they do with the data. Now, Navi's overuse of this tool to hoard data is actually etched into its DNA.

Details on collections, disbursals, costs, efficiency and more hit the Slack channel every morning at half-past five. Within an hour, Sachin Bansal is already looking for answers and hunting down drop-off rates at every step. Things move really quickly in the company. A former employee told us that saying no is not an option to Sachin. If you say something will need five weeks to complete, he will push for it to be done in two weeks. He believes in putting everything behind it.

This high-pressure environment at Navi makes sense when you think about how Bansal, who owns 97% stake in the company, has pumped in nearly 500, million dollars of the money from his 2018 Flipkart exit into it. The idea was for a stock market debut and a banking license. That way, the non-bank could have raised funds through public markets and also gained access to low-cost deposits. Both of these plans failed. So now, Sachin Ban Sal is going all guns blazing with Navi's lending business.

We have an exciting announcement. If you are a regular listener, you would know that the Ken's podcast. podcasts have hit many milestones this year. From daybreak crossing 1 million downloads to the launch of our first ever premium podcast two by two. We want to keep this momentum going. And for that, we are looking for talented people to join our team. We're looking for a podcast producer to help us produce great narrative-driven shows at the intersection of journalism and business. And we're also looking for an audio journalist who has covered one or more business sectors, ideally careers, education, tech or startup.

for at least two years. If you fit the bill or know anyone who does, please check out the link in the show notes. And now, back to the episode. You see, from the lender's perspective, income statements are a useful resource for underwriting and also important to monitor loans. But getting them reliably is a constant issue for these lenders.

In fact, once like Bajajj did not even ask for these statements, and that is because it is a pain statement. taking process for lenders when they are giving out a loan offline. Plus, when borrowers themselves upload their bank statements, they often do not meet the lender's standards. This is where account aggregators turn out to be very useful. They help these lenders pull bank statements and adjust the monitoring period and frequency the way that they want. All they need is the borrower's consent to make it happen, which in most cases comes quite easily. For example, a source close to Bajarge Finance told us that since integrating with aggregators

in mid-20203, nearly half of borrowers gave their consent to a large lender like Bajajaj finance. But look what happened to Finvu, a Pune-based aggregator, which was working with lenders like Navi. It actually got barred by SBI earlier this year. Finvu was allowing lenders like Navi to pull borrowers bank statements multiple times in a day. This is way more than the once-per-day limit that Navi now wants. So it was because of these over-frequent pings enabled by Finvoo that SBI bought it. An aggregator told again that banks are finding the high frequency of pulls are putting a strain on their servers. They are also upset that their customer is being taken away by,

another lender. All of this has enabled the push within the industry to check both lenders and aggregators and stop them from asking for more consent for data than necessary. For instance, since May, Sehmati, which is an alliance of account aggregators, banks, lenders and other financial institutions within the account aggregation ecosystem has been recommending that specific limits should be incorporated while seeking consent for various. various use cases. Biji Mahesh, the CEO of Seymati, told us, and I'm quoting, SBI is an active participant in Seymati's participatory government forums along with other stakeholders.

We are all aware of SBI's concerns on this and are confident that this can be resolved with consensus among those in the ecosystem. He also said that because account aggregator usage is on a rise, Seymati is developing technical solutions to detect deviations all in the interest of protecting consumers. So Navi, as much as it needs to go all out to get its lending and collections sorted, should also be careful and not push it too far. Else, it won't be long before the regulator swoops in and does something drastic. What you're listening to is just a small sample of our subscriber-undi offerings.

A full subscription unlocks daily long-form feature story. newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv CN.