RBI Reluctant To Grant NBFC Licences To Fintechs, Applications Of PhonePe, RazorPay Rejected

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The RBI has rejected NBFC licence applications of PhonePe, Razorpay, BharatPe, Khatabook, OkCredit, and Niyo

The central bank’s stance is largely a result of concerns related to ownership of fintech startups and the origin of capital flowing into these firms

Lendingtech is expected to emerge as the biggest sub-segment within the fintech sector by 2025, accounting for $616 Bn addressable market value

Hectic parlays seem to be of no avail as the Reserve Bank of India (RBI) is reportedly apprehensive about giving non-banking financial company (NBFC) licences to fintech startups. 

The Hindu BusinessLine, citing sources, reported that the central bank has so far been reluctant to issue the coveted licence to fintech players. 

PhonePe, Razorpay, BharatPe, Khatabook, OkCredit, and Niyo are among the fintech startups whose applications for NBFC licences have been rejected by the RBI, the report said.

The stance is largely a result of concerns related to ownership of these fintech companies and the origin of capital flowing into these firms. Other issues reportedly flagged by the RBI include exorbitant interest rates charged by the fintech startups. 

“The colour of money flowing into these companies is highly questionable as it is often through tax havens and to be in the lending business, such an ownership structure won’t work,” a source was quoted as saying. 

Another source noted that while the central bank has become a ‘bit liberal’ while considering NBFC payment aggregator or payment gateway licence, a full-fledged NBFC licence is still a ‘no-go zone’. 

Meanwhile, fintech players have now resorted to other avenues to secure their licences, including making representations before the government through industry bodies. 

“We are in touch with the RBI on this matter,” Fintech Association for Consumer Empowerment’s chairman Ram Rastogi was quoted as saying. 

Fintech giants are also evaluating the acquisition of smaller fintech players with NBFC licences. No regulatory backlash over digital payments major PhonePe’s reported bid to acquire ZestMoney could also pave the way for more such fintech players to acquire smaller companies. 

Many have expressed apprehensions that the nod for the proposed $200-$300 Mn acquisition deal could turn the fintech segment into an attractive hunting ground for acquisitions. 

RBI’s Steady Game

This comes nearly a month after seven-year-old microlending startup ftcash received an NBFC licence from the RBI. Days ago, Pune-based fintech startup 4Fin also received the licence from the central bank. 

An NBFC licence allows a platform to offer loans and credit facilities. With the banks still marred by a legacy approach to lending, fintech majors expect to come in and fill this gap. These new-age tech startups aim to deploy their digital infrastructure and agility to expand their offering to hinterlands of the country where working capital loan requirements are still far from being fulfilled. 

However, this approach has also received criticism, especially amid concerns over opaque and high rates of interest charged by fintech players. Earlier this year, the RBI also cancelled the certificates of registration of five NBFCs for flouting outsourcing and fair practices code norms.

The fintech players have also been in the line of fire over the overarching regulatory crackdown launched by the government earlier this year in digital lending probes and money laundering cases. Earlier this month, offices of fintech majors PhonePe, Google Pay and Paytm were searched in connection with a digital part-time job scam involving Chinese nationals.

While the fintech players have denied any wrongdoing, multiple raids by the Enforcement Directorate have cast a pall of gloom. 

Lendingtech is expected to emerge as the biggest sub-segment within the fintech sector by 2025, accounting for 47%, or $616 Bn, of the total $1.3 Tn addressable market value. 



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