Don’t exceed your license: RBI Governor Das tells fintech firms
Fintech and digital lending firms should only engage in activities permitted under the license granted to them, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday. Companies must obtain the Norwegian Banking Authority’s permission before venturing into territories for which they do not have a 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 being loaded through lines of credit.
Speaking at Bank of Baroda’s annual banking conclave, Das said: “Companies should operate under the licenses given to them. If they do anything beyond that, they should ask our permission. Without permission, if they engage in activities for which they do not have permission, it is unacceptable. There will be a build-up of risk, and we cannot allow that.”
The digital lending norms, which are in the works for several months, are expected to come out soon, Das said. These regulations have been delayed due to 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, RBI’s notification will impact 8-10 million BNPL customers. Many firms stopped their offers after the warning, while some slowed down the acquisition of new customers.
In the past, there were also cases of new age digital lending firms engaging in unscrupulous ways of lending, charging exorbitant interest rates from customers and harassing them. Such firms mushroomed during the Covid pandemic amid the need for immediate loans due to financial 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 loan applications undergo a verification process by a nodal agency and set up self-regulatory organizations.
“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 with financial stability,” Das said.
Earlier, the RBI had also said that while the central bank was encouraging innovation in the fintech sector, it was mindful of emerging risks in the segment. “With the growing impact of the fintech segment at both the macro (financial stability and cyber security) and micro (consumer protection and financial inclusion) levels, it becomes relevant to continue to facilitate innovation while providing regulatory order in the fintech space ,” says the central bank in its annual report.
Das, during his speech, also said that the RBI will issue a consultation paper on climate change and climate change-related risks in the coming weeks to equip banks and financial institutions to effectively deal with the issues arising out of climate change.
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