Excerpt from Business Standard Article, Published on Dec 24, 2023
According to insiders in the industry, the fintech landscape is preparing for potential consolidation amid the Reserve Bank of India’s (RBI) ongoing changes to regulations.
Recent RBI directives, including the digital lending guidelines, first loss default guarantee, and amplified risk weights for unsecured personal loans, have stirred a reevaluation of growth strategies among fintech firms. Compliance expenditures, encompassing technology investments, data protection, and internal audits, have nearly doubled over the past year, notably impacting smaller non-banking financial companies (NBFCs).
Aditya Damani, CEO of Credit Fair, acknowledges the burgeoning compliance expenses but anticipates sustainable growth for larger players. He predicts an inevitable consolidation, envisioning smaller entities merging with regulated establishments due to the challenging cost landscape.
Several stakeholders urge clearer communication channels with regulators, emphasizing the need for interpretative dialogues to navigate complex compliance requirements effectively. Meanwhile, some companies have sought diversification avenues in response to RBI restrictions, experiencing slower growth and revenue impacts.
However, voices like Srinivasu MN from the Payments Council of India believe that the RBI’s innovation hubs offer opportunities for smaller players to test and expedite product launches without incurring extensive expenses.
While uncertainty prevails due to evolving regulations, investors scrutinize compliance adherence before funding. Fintech funding saw a decline in 2023 amidst regulatory uncertainties, impacting investment scenarios.
The shifting regulatory landscape, though fostering innovation, presents challenges requiring industry-wide adaptation and strategic partnerships for sustained growth.
RBI Intervention Timeline:
Sep ’22: Introduces digital lending norms for customer protection
Jun ’23: Approves first-loss default guarantee implementation
Nov ’23: Raises risk weights for unsecured loans and credit cards from 100 to 125%
To delve deeper into this topic, please read the full article on Business Standard.
