A day after RBI curbs on NBFCS: Fintechs may face temporary disruption

The ban on sanction and disbursement for its partner DMI Finance would be effective from October 21, as per the RBI directive

The Reserve Bank of India’s (RBI’s) action on two non-banking financial companies (NBFCs) on Thursday could temporarily disrupt disbursements for fintech companies that have been sourcing customers for these firms.

The disruption for fintech companies is expected to be temporary, thanks to their multiple partnerships beyond just NBFCs. 

Notably, the RBI barred DMI Finance and Navi Finserv from sanctioning and disbursing loans due to their practice of charging exorbitant interest rates.

“Since a fintech partners with multiple NBFCs, the regulatory impact on a single entity may be very small for a fintech’s overall business. Thus, fintech firms may not get impacted in the longer term and only some minor disruption would be visible,” an industry executive said, requesting anonymity. 

For instance, fintech major Google Pay, which extends loan offerings, including secured and unsecured credit, has partnered with five lenders. These include DMI Finance, Indifi Technologies, ICICI Bank, Aditya Birla Finance, and Muthoot Finance. 

The ban of sanction and disbursement on its partner DMI Finance would be effective on October 21, according to the RBI directive. 

Google Pay and DMI Finance did not respond to queries sent by Business Standard. 

“One thing fintechs would now consider is to check whether the same practices are there in their other partners as well, and they would also try to see that these partners at least follow what is prescribed,” an industry executive said.  

However, the banking regulator’s directive could reverse significant gains achieved by these NBFCs. 

In FY24, Bengaluru-based Navi Finserv had assets under management (AUM) Rs 8,527.2 crore, a 7.8 per cent year-on-year (Y-o-Y) increase from Rs 7,859.6 crore in FY23. 

The company had seen its disbursements swell to Rs 16,006 crore in FY24, a 32.2 per cent increase from Rs 12,106.7 in FY23, according to the company’s annual report. 

Under the RBI scanner
 

While the Reserve Bank of India has been cautioning NBFCs on charging excessive interest rates, the decision to impose curbs on four entities on one day has sent shockwaves to the industry. Whether the move would make the industry more disciplined and if more such restrictions would follow are some of the questions the industry is pondering.