How Fintech Evolves With The Changes In RBI Guidelines

For the longest time in India, lending has been viewed as an exclusive territory for banks first, followed then by regulated NBFCs. As digital technology strengthened its foothold in the country, FinTech entered the scene. Despite the presence of such Financial-Technology ventures in the market there were no clear directions from the Centre on the same.

However, as of 2022, the RBI has recognized the role and scope of FinTech in the lending ecosystem. When as many as 600 out of 1100 lending apps for Indian Android users were found to be illegal, the country’s leading financial authority was compelled to chalk out a plan of action for these digital lending services.

Jitendra Gupta, founder and CEO of the digital banking app Jupiter, believes that the new RBI guidelines will broaden the horizons of FinTech in the digital lending ecosystem- including both B2C and B2Blending- making it a $350 billion market opportunity (approx.) before the end of FY23. Besides operational discipline, it is also expected to build trust and confidence among the public to draw them towards these newer channels of credit.

As per the guidelines, the RBI has drawn a line of distinction between the regulated and non-regulated FinTech-driven financial services in the market, with the latter also being given recognition through Lending Service Providers (LSPs) and Digital Lending Apps (DLAs).

Overall, the guidelines are expected to increase regulatory pressure on FinTech enterprises, so that they work in tandem with the existing lending infrastructure in the country. The use of digital lending products like BNPL, which are now being offered by most B2B payment platforms, have also been brought under regulation.

The Annual Percentage Rate (APR) of digital loans, in B2B lending and otherwise, shall be based on an all-inclusive cost and margin and disclosed to the borrowers in the Key Fact Statement (KFS). This will add more transparency in digital lending, and thus increase the appeal of FinTech-driven lenders in the eyes of the people. 

The guidelines also state that the data collected by DLAs and LSPs should be need-based and compiled with customers’ consent. The borrowers are also to be given the option to withhold consent, or revoke previously granted approval- all in an effort to make FinTech a safe space for the masses. 

The Way Forward

The new RBI guidelines thus offer a plethora of opportunities for FinTech to evolve and develop new solutions under its regulatory watch. Experts believe that with the trust of the RBI in it, digital lending will evolve as a multi-layered system of financing, providing easy access to credit with increased transparency.  

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