Lending and credit in India, explained

How digital lending works

A digital lender finds a borrower through an app, checks identity with e-KYC, looks at data such as bank statements, credit bureau scores and phone or income signals, and decides in minutes. The money is paid into the borrower's bank account, and repayments come back through UPI, autopay or bank transfer.

The people behind the app fall into two groups. Some are regulated lenders themselves, mostly non-banking financial companies (NBFCs), which lend from their own balance sheet. Others are lending service providers (LSPs), who find and serve borrowers on behalf of a bank or NBFC that holds the actual loan. In StopDown's data, Kissht, Moneyview and Navi are well-known names in digital lending.

Speed is the main selling point. A loan that once took weeks of paperwork can be approved in minutes. The trade-off is that fast decisions rely on limited data, so lenders usually start with small amounts and raise limits only after a borrower repays on time. This step-by-step approach is how many lenders keep early losses low.

Types of loans

Personal loans are given without security and are usually repaid in months or a few years. Small-ticket consumer loans are smaller and shorter. Buy-now-pay-later and credit lines let a customer spend up to a limit. Business loans cover working capital for small shops and manufacturers. Secured loans, such as gold or home loans, are backed by an asset and cost less.

NeoGrowth, which lends to small businesses and appeared in a recent StopDown headline for raising ₹85 Cr from FMO and LeapFrog, is an example of business lending.

How lenders earn and lose money

A lender earns interest and fees, and pays three costs: the cost of funds, the cost of finding and serving customers, and credit losses. What is left is profit. A simple example, with made-up numbers: if a lender charges 24 per cent a year, pays 11 per cent for funds, spends 4 per cent on operations and loses 6 per cent to defaults, it keeps 3 per cent.

Because margins are small, a small rise in defaults can wipe them out. This is why underwriting, the process of deciding who gets a loan, is the core skill. Collections matter too. Good lenders remind borrowers early, offer clear repayment options and follow rules on how they contact people.

Lenders also need money to lend. Equity from investors covers losses, and debt from banks, credit funds and bond buyers funds the loans. A recent StopDown headline said Vivriti was targeting a first close of ₹2,500 Cr on a credit fund, a sign that private credit is a growing source of such money.

Pricing is risk-based. A borrower with a strong repayment history pays less, and a new borrower pays more. That is why two people can see very different rates for the same app. Borrowers should compare the annual percentage rate, not just the monthly figure, because fees can add much to the cost.

Co-lending and partnerships

Many fintechs lack the balance sheet to lend at scale, so they partner. In co-lending, a bank and an NBFC each fund a share of a loan and divide the interest. In an originate-and-service model, the fintech finds the borrower and runs the app while a licensed lender holds the loan. In some deals, the fintech offers a default loss guarantee, promising to cover part of the losses. The RBI limits how large such guarantees can be.

The risk is shared but not removed. If a fintech's borrowers default heavily, the partner lender can pull back, and the fintech loses its supply of loan money.

The rules, as of October 2026

The RBI's Digital Lending Directions, 2025, effective from May 2025, apply to banks, NBFCs and other regulated lenders and, through them, to the apps and partners they use. Key points: the borrower must receive a key fact statement that shows the full cost, including the annual percentage rate and all fees, before the loan is signed. Loans must be paid directly into the borrower's bank account, and repayments must go to the lender's account, not through the app's account. Borrowers get a short cooling-off period to exit a loan, paying only the disclosed processing fee and interest for the days used. Lenders remain responsible for outsourced partners and must do due diligence on them.

NBFCs are also grouped into layers by size under the RBI's scale-based regulation, and bigger ones face stricter capital and governance rules. In 2023 the RBI raised the capital that banks must hold against unsecured consumer loans and loans to NBFCs. For legal advice on a specific product, check with a professional.

Risks and what to watch

The main risks are loan losses when borrowers take on too much debt, a squeeze on funding when banks or investors pull back, and harsh collection practices that draw regulator and public anger. Fraud and identity theft are common, too.

Watch how account aggregator data improves underwriting, whether credit funds keep supplying money, how lenders handle the rules on default guarantees and partners, and whether lenders reach steady profit without constant fundraising.

The breakdown

Business models

The numbers that matter

• Yield: the interest and fees charged on the loan.
• Cost of funds: what the lender pays to borrow the money it lends.
• Credit loss: the share of loans not repaid, the biggest swing factor.
• Operating cost per loan: includes marketing, underwriting and collections.
• Leverage: how much debt sits against each rupee of equity.

Rules and regulators

Risks

• Rising defaults in unsecured loans.
• Funding drying up from banks or investors.
• Rule changes that stop a product or a partner model.
• Reputation damage from aggressive collections or data misuse.

Lending & credit: latest on StopDown

• NeoGrowth raises ₹85 Cr from FMO, LeapFrog 9 October 2026
• CreditNirvana launches ORCA and CognifAI Assist 7 October 2026
• GoSense.ai launches AI app security platform 6 October 2026
• Oolka in talks to raise $45 million 6 October 2026
• Indifi turns profitable in FY26 on lower bad-loan costs 5 October 2026
• BlackSoil Capital targets ₹2,400 crore lending 3 October 2026
• Orange Retail Finance raises ₹100 crore debt, adds Shriram tie-up 3 October 2026
• Seeds Fincap raises ₹100 crore Series B 1 October 2026

Every Lending & credit story →

Most active investors here

1. Peak XV Partners (5 rounds)
2. Alteria Capital (4 rounds)
3. FMO (4 rounds)
4. Prosus (4 rounds)
5. Z47 (4 rounds)
6. 3one4 Capital (3 rounds)
7. Accel (3 rounds)
8. Blume Ventures (3 rounds)

Rounds StopDown covered in the last 12 months. Activity is not a measure of quality.

More in Financial Services

• The financial services sector in India, explained
• Payments & infrastructure
• Insurtech
• Wealthtech & investing
• Banking infrastructure & neobanking