The explosion of small-ticket, instant credit after 2020 has triggered a surge in delinquencies, especially in unsecured personal loans and 'buy now, pay later' categories. According to reports from Mint, fintech lenders' active-loan portfolios rose 25.6% year-on-year to ₹2.1 trillion by June 2025, while loans more than 180 days past due increased to 8.6% of the portfolio from 7.1%. Kundan Shahi of LegalPay first built a startup financing litigation in late 2019 before realizing the potential in debt management, eventually launching Zavo in November 2024 to connect delinquent borrowers and fintechs for settlement. Ritesh Srivastava of debt-relief startup Freed, founded in 2020, claims the platform is settling almost ₹30-40 crore a month in debt across fintech lenders, NBFCs, and banks.
Credit management platforms operate on a commission-based model, taking a percentage of loan amounts settled or interest saved. As reported by Mint, at Freed's typical settlement rate of about 45%, a borrower with ₹1 lakh outstanding would usually settle for roughly ₹45,000, saving about ₹55,000 versus the face value of dues. The platform charges borrowers a 12-15% success fee as each account gets resolved, working out to roughly ₹5,400-₹6,750 per ₹1 lakh outstanding if applied on the settlement payout. Zavo takes a small cut from lenders for every rupee recovered, pitching faster cash through partial EMIs and bidding-based settlements at lower fees compared to traditional collection agencies that charge 10-15% of recoveries.
Despite regulatory crackdowns, risk remains stubborn in sub-₹10,000 personal loans from fintechs, with dues past 31-90 days staying at 4.1% and those outstanding for 91-180 days at 4.8% as of June 2025. According to Mint reports, these delinquency levels are higher for similar loans extended by other NBFCs at 1.7% (31-90 DPD) and 1.8% (91-180 DPD) respectively. The Reserve Bank of India's crackdown has forced lenders to tighten underwriting and rein in aggressive use of first-loss default guarantees, with the regulator capping the guarantee at 5% of the loan amount in 2023.
Personal credit through fintech NBFCs has grown dramatically from 0.44 crore loans in FY19 to 8.9 crore in FY24, and 8.3 crore in the April-December 2024 period of FY25, according to a Fintech Association for Consumer Empowerment (FACE) report. As reported by Mint, Zavo claims it has processed repayments of about ₹500 crore on its platform in the past 9-10 months and is building a settlement layer for 90+ DPD borrowers. Freed currently works with around 250 lenders and is adding 5-10 lenders monthly, with enrolled debt expected to hit ₹2,200 crore in FY26 and increase to ₹7,500 crores in FY27.
Debt management platforms are effectively seeing two borrower cohorts: those still current but overleveraged, and those already sliding into delinquency. According to Mint reports, the first bucket comprises borrowers with debt-to-income ratios of 80-85 who are one bad news away from going into delinquency, seeking consolidation that brings down EMIs by 30-40%. The second bucket includes borrowers who have missed multiple dues and are facing collection pressure, wanting organized negotiation to close multiple liabilities. BillCut has refinanced and helped settle roughly ₹1,000 crore in gross loans for consumers stuck in debt, focusing on borrowers with fixed obligations-to-income ratios where EMI payments exceed 50-60% of take-home income.
