Fintechs set for change as norms for debt collection practices are updated

The Fintech Association for Consumer Empowerment’s (FACE’s) rollout of debt collection norms breathes life into Mint Road’s self-regulatory organisation (SRO) framework. The norms’ impact will be felt in governance, agent conduct, borrower disclosure, data protection, and safeguards for digital and field recoveries. They will also shape the work of shadow banks, lending service providers (LSPs), and collection-tech firms. Stricter collection protocols mean you can’t push credit as in the past (its return leg has to be taken into account); business models may have to be tweaked even as fintech funding heads southwards. 

So, how are we to read FACE’s moves and the fallouts in store? 

“We draw attention and recognition to the symbiotic connection between debt collection and access to credit,” says Sugandh Saxena, chief executive officer (CEO) of FACE. As she sees it, “a robust collection process helps lenders to serve segments with unstable income and reduce delinquencies; it positively improves their access to and cost of loans and credit discipline.”

FACE’s data shows that in FY25, fintechs gave 109 million loans amounting to ₹1,06,548 crore with an average ticket size of ₹9,786. Fintechs primarily engage in unsecured lending to customers, often on the fringes. These segments are prone to shocks and delinquencies. In this context, robust, respectful and responsible debt collection becomes more critical. This also flows from the guidance given in the ‘Report of the working group on digital lending, including lending through online platforms and Mobile Apps’ (18 November 2021). It said, “To ensure 

fair treatment of borrowers, the regulated entity (REs) and their agents shall not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors' family members, referees and friends, making threatening and anonymous calls or making false and misleading representation.” 

A question of credit 

Will this hurt credit growth of fintechs? “I don’t see it (FACE norms) slowing down credit. If anything, it will be strengthened,” says Ritesh Srivastava, founder-CEO of FREED (the country’s first retail debt relief company) counterintuitively. He points to cuts in the Goods and Services Tax and the government’s push to increase consumption. Srivastava feels the norms will build discipline and dignity in collections. “It will give lenders more confidence and bring new-to-credit customers into the formal system. This is about sustainable growth, expanding credit responsibly, not moderating it.” It can be debatable. 

Take Mint Road’s Digital Lending Directions (May 8, 2025). They said REs must check creditworthiness before extending any loan, including age, occupation and income details. The same is to be kept on record for audit purposes; and REs shall ensure there is no automatic increase in credit limit unless an explicit request is received, evaluated and kept on record from the borrower for such increase. That basic credit hygiene is reiterated is indicative that we have some way to go on this front. 

What of the retail credit market? According to RBI’s Financial Stability Report June 2025, per capita debt grew to ₹4.8 lakh in FY25 from ₹3.9 lakh in FY23, led by higher-rated borrowers. Non-housing retail loans formed 54.9 per cent of total household debt in FY25 (and 25.7 per cent of disposable income as of FY24). Even as unsecured retail lending has moderated — it forms 25.0 per cent of retail loans and 8.3 per cent of gross advances — its asset quality has relatively weakened compared to the overall retail portfolio — gross non-performing asset ratio at 1.8 per cent vis-à-vis 1.2 per cent in March 2025, especially in private banks. 

Let’s step back and look at FACE’s figures again: In FY25, fintechs gave 109 million loans amounting to ₹1,06,548 crore. The SRO has qualified it: The fintech-NBFC (non-banking financial companies) set does not include NBFCs offering digital loans (along with non-digital loans) directly through their apps and indirectly in partnerships with fintech-NBFCs and LSPs. In addition to NBFCs, banks also provide digital loans. “We estimate that such NBFCs and banks will have a significant digital lending business. However, there’s no way to distinguish loans as digital in the credit bureau data to carve out their digital lending separately. 

In that sense, the report is short on presenting the totality and plurality of digital lending, as the overall size of digital credit is much larger,” said the FACE report. It follows that credit given via the digital route is much larger than the ₹1,06,548 crore in FY25 if all RBI REs’ exposures are taken on board. There’s also no industry-sizing study on it. 

The RBI working group’s report on digital lending though mentioned that based on data received from a representative sample of banks and NBFCs (representing 75 per cent and 10 per cent of total assets of banks and NBFCs, respectively, as on March 31, 2020), it is observed that lending through the digital mode compared to the physical mode was still at a nascent stage in case of banks (₹1.12 trillion via digital mode and ₹53.08 trillion via physical mode); for NBFCs, a higher proportion of lending was happening through digital route (₹0.23 trillion via digital mode and ₹1.93 trillion via physical mode). The plot has changed completely since. 

Industry sources surmise that given the interconnectedness — funding and partnerships — between REs, it could well mean that other SROs will use FACE’s norms as a template when it comes to digital lending. SROs in the pipeline being the Finance Industry Development Council (for NBFCs), Business Correspondent Federation of India, the National Urban Cooperative Finance and Development Corporation. Plus, the existing two in microfinance: Sa-Dhan and Microfinance Institutions Network. The Fixed Income, Money Market and Derivatives Association of India is also an SRO but it has nothing to do with lending. Banks have no SRO. 

Benchmark set 

“The new norms by FACE will act as a benchmark for the wider financial services industry. The entire chain — from onboarding to debt recovery — will be impacted,” says Ranvir Singh, founder-CEO, Kissht. “What we are seeing is a replay of what happened in the legacy banks and NBFCs’ space where regulatory arbitrage was cut. The same is happening between fintech and the other RBI REs,” says Ankur Bansal, co-founder, BlackSoil Capital. What he adds is critical: “The ability to read the regulatory turf and tweak business models will have a bearing on fund-raising.” 

With the focus on debt collection, the way fintechs give out loans and make recoveries will become tighter; and they will have to revisit their business models. Will this impact fund-raising plans? According to Tracxn — which tracks such data — fintechs raised $889 million in H1 2025, a 26 per cent fall from $1.2 billion in H2 2024 (and a 5 per cent drop from $936 million in H1 2024). 

As Neha Singh, cofounder of Tracxn, sees it, from a funding perspective, investors are increasingly prioritising regulation-aligned and sustainable models. Fintechs that recalibrate unit economics, moderate growth, and strengthen compliance are better placed to attract capital; others may face challenges in the near term. She points to “a recent example is Neurofin, which raised $.6 million to scale GenAI-powered compliance automation, highlighting how investors are selectively backing startups that embed compliance into their core offerings.” In essence, funding is expected to flow towards fintechs that balance innovation with compliance and show resilience in adapting to regulatory norms. “Those that fail to recalibrate their onboarding and collection strategies will find it increasingly difficult to raise capital, especially in an already cautious funding environment.”

It may be back to the drawing board for many.