Fintechs typically charge higher interest rates given they cater to the sub-prime category of customers, offering them unsecured credit. With the RBI raising this issue of usurious interest rates, platforms might need to tweak their models.
In the fintech world, interest rates can climb up to 35%-40% per annum, depending on the borrower profile. While banks and NBFCs partnered with such fintechs given the demand in the market, this might come to a grinding halt now.
“Co-lending is a key business growth driver for fintechs. Now large NBFCs will relook into these arrangements after the recent RBI action,” said the founder of a fintech lending startup.
On Thursday, the RBI asked Navi and DMI Finance, two major new-age NBFCs, to stop offering credit products from October 21. The regulator cited reasons like very high interest rates, not adhering to regulatory principles and guidelines on assessment of customers as the reasons for the action.
A Navi spokesperson said: “The company is reviewing the directions received from the Hon’ble Reserve Bank of India and will work with them, and address all the concerns raised with promptness and completeness.”
Discover the stories of your interest
This comes at a time when restrictions in the unsecured lending market have put the larger consumer lending sector under stress.“The RBI is undertaking regular audits of all systemically important NBFCs; co-lending arrangements are being looked into, underwriting patterns are being questioned as well,” said the chief executive at a large fintech lending firm.
While such audits are nothing new for regulated players, the RBI is scrutinising these players more closely now. Smaller fintechs could be on the RBI scrutiny list next.
ET wrote on October 17 that Lendingkart, a popular small business-focused lending firm, is raising an internal round at a valuation of $100 million. The valuation is down from $350 million in the previous round, indicating the increased risks faced by the segment.
The regulator on August 16 cracked down on peer-to-peer lending startups, bringing their business almost to a standstill.
The founder at another fintech firm told ET that these regulatory actions are part of the overall messaging from the RBI that unsecured credit players need to go slow.
“The regulator has conveyed through multiple forums that new age players who do not have the right risk appetite should review their processes, make underwriting stricter and slowdown disbursals, now they are also taking action,” the founder added.
