NBFC License Is the New Goal of Fintech Startups

Monisha Chaudhary

10 Jul, 2023

OKCredit, Khatabook, BharatPe all are fast-growing Fintech startups. All these Fintech companies in India are applying to get their own NBFC license. People who are aware of the intention of Fintech companies behind such development say that their purpose is to maintain their own loan books instead of sharing the profit earned with the partners. 

Issuing of NBFC license to the Fintech startups will affect the cost of capital and loan disbursement process as well. Nonetheless, it will lead to a reduction in the cost of capital and accelerate the loan disbursal process . Industry experts say that it will lead to further benefits as well, such as frauds will be detected using technology and leakage will be key to scaling up operations. Akash Gehani co-founder of Instamojo said, “It is a natural progression for not just fintech startups companies, but for most tech-based consumer-facing businesses.”

At present most of the fintech companies are actively involved in the business of lending cross-sell services with a registered bank or NBFC.

Fintech brands such as RazorPay, Instamojo, Enkash, BharatPe, and Paytm have collaborated with banks in the country so that they can offer loan facilities to their customers. BharatPe co-founder on his conversation with Economic Times said, “It is fundamentally clear that there is no money in payments. The core business model is lending. As UPI grows more through our platform, we can disburse more loans through our partners.”

There are few fintech startups experts who are utilizing their growing experience and excellence in underwriting loans through a stack of customer data that can help them evolve into primary lenders. Their revenue model is now based on becoming lucrative internet-based incomes.

Gehani was quoted as saying in an interview, “My guess is that when you work with these partner banks and NBFCs, some of the learning spills over to you. The bigger concern is not only underwriting but also the recovery of these loans. Things can get a bit tricky.”

Instamojo is also working in the direction to get an NBFC license. Though, there is a certain amount of risk is involved with these Fintech companies that may hamper the banking ambitions of this sector. The crisis that occurs in the banking sector, which spread out with Infrastructure Leasing and Financial Services^[1] (IL&FS) defaulting on its debt obligations in September 2018, had scraped the confidence of the sector.

The collapse has affected systematically formed important NBFCs and snowballed them into a greater risk to the real financial sector, which results in central bank constricting regulations for these non-banks.  

Chairman of the Fintech Convergence Council, Naveen Surya, said, “We have seen over the last 18 months the RBI canceled hundreds of license after a long time.” He further added, “Getting license may be less of an issue for these fintech companies, but maintaining compliance could pose a challenge. “ 

Top industry expert addresses the risk factor for these start-ups, an expert was quoted as saying, “In India, everyone can give a loan, and the real challenge lies in the recovery of these assets.”

Also Read: Steps Taken by RBI to Develop Fintech