RBI report will clean up fintech lending ecosystem, enable calibrated growth: Experts

When asked if it could be a game-changer, Varma said, “It could potentially create a lot of clean-ups right now. You see more than 1,100 lending apps, and out of them around 600 were slated to be probably illegal, as the report called out, so the whole idea is of putting a monitoring mechanism in place, which safeguards customers around fraudulent offerings, any predatory lending practices, illegitimate risk-taking, all of this will come under tight scrutiny.”

“So, I think what the regulator is intending to do could potentially be a real game-changer because it will remove the illegitimate players, clean up the industry, make it better for consumers and also more competitive for genuine companies that are doing legitimate business,” Verma specified.

On Mobikwik’s plan to delay its IPO, Varma said, “I can say for sure that the markets are getting more and more prudent about the genuineness of companies and the legitimacy of businesses. So maybe that's a little bit of a wake-up call.”

On first loss default guarantee (FLDG), he said, “What the report is saying is that any synthetic structure such as the FLDG cannot be formulated between a regulated entity and an unregulated entity. I think in isolation they haven't said too much about whether an FLDG between two regulated entities can exist or not. I think as a mechanism, FLDG has its advantages. So as long as both the parties involved are regulated entities, and there is clear transparency in terms of risk ownership and customer documentation, I feel there is scope for this model.”

Krishnan said, “The overarching theme here from the Reserve Bank of India is to act before it becomes a very big system. You don't want to go down the China route, where it becomes a very big system and then you start taking corrective action, which then hurts multiple stakeholders. So you want this to grow in a controlled environment, in a calibrated manner rather than exploding exponentially at this point of time.”

He added, “It wants these business models to kind of reinvent themselves, make sure that they are now applying for the NBFC licence if they have not already done so, etc., so you come within the jurisdiction of the RBI and then they are happy to just offer the sandbox of growth.”

On NBFC licence, Krishnan said, “I would think a few other digital players or fintech players also have an NBFC licence. So we are aware that ZestMoney even though it is 'Buy Now, Pay Later' (BNPL), under the brand Zest, it has an NBFC by a very different name, so does Simpl. So a few of these FinTech players do have NBFCs. Capital Float, it works with Amazon, but it is an NBFC with a licence. So I think a few do have the licence, many don't and the ones who don't will have to now come under the jurisdiction of the RBI and just get themselves registered as NBFCs and so on.”

He added, “More importantly, I think the working group is acknowledging that digital lending is not going anywhere. They acknowledged that all of retail lending, a lot of SME lending will go the digital way and hence, they want to be on the right side of the regulation.”