Don’t exceed your licence brief: RBI governor Das tells fintech firms

Fintech and digital lending firms should engage in activities only that are permitted under the licence granted to them, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday. Firms must obtain the banking regulator’s permission before venturing into territories for which they have no licence.

The RBI governor’s stern statement comes a month after the central bank issued a notification disallowing non-bank prepaid payment instruments (PPIs) from loading through credit lines.

Speaking at the Bank of Baroda’s Annual Banking Conclave, Das said: “Firms should operate under the licences granted to them. If they are doing anything beyond that, they should seek our permission. Without permission, if they are engaging in activities for which they have no licence, then it is unacceptable. There will be a risk build-up and we cannot allow that.”

The digital lending norms, which are in the works for several months, are expected to come out shortly, Das said. These regulations have been delayed because of the complexity of the situation.

The RBI’s notification regarding PPIs had sent the entire fintech world, especially the buy now pay later (BNPL) industry, into a tizzy. According to industry experts, the RBI’s notification would have an impact on 8-10 million BNPL customers. Many firms stopped their offerings after the notification, while some slowed down their new customer acquisitions.

In the past, too, there were instances of new-age digital lending firms engaging in unscrupulous ways of lending, wherein they were charging exorbitant interest rates from customers and harassing them. Such firms mushroomed during the Covid pandemic amid the need for instant loans because of economic pressure.

A committee set up by the banking regulator to look into the digital lending aspect had recommended reigning in these digital lenders. It recommended that digital lending applications undergo a verification process by a nodal agency and set up self-regulatory organisations.

“We want to support innovation and at the same time, we want the entire ecosystem to grow in an orderly and regulated manner, so that there is no compromise on financial stability,” Das said.

Earlier, too, the RBI had said that while the central bank encouraged innovation in the fintech sector, it was factoring in emerging risks in the segment. “With the increasing impact of the fintech segment on both macro (financial stability and cyber security) and micro levels (consumer protection and financial inclusion), it becomes pertinent to keep facilitating innovation, while also bringing regulatory order in the fintech space,” the central bank said in its annual report.

Das, during his speech, also said the RBI will issue a consultation paper on climate change and climate change-related risks in the coming weeks in order to equip banks and financial institutions to effectively deal with the issues arising out of climate change.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor