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.