The Reserve Bank of India (RBI) has recently been acting strictly on Fintechs. Four fintechs Navi, Arohan, DMI and Ashirvad micro finance were banned recently. Also, the RBI had lately expressed concern about growth in non banking financial company (NBFC) loan books raising questions about systemic hygiene and the potential for a credit bubble.
Such measures would obviously mean greater scrutiny of loan books and tough times ahead for non-compliant NBFC’s.
There has been a lot of debate on this with questions asked on whether the RBI is being too heavy handed in discouraging the Fintechs from operating and making profits.
However, the answer is no.
“The immediate reaction to penalties and fines might seem steep and harsh at the outset but in hindsight. the long-term impact on the entities have been fair and positive. Remember the RBI regulations of P2P lending sector in 2018? It jolted the market back then, but the results have been positive with an improvement in trust and a reduction in defaults,” says Piyu Dutta, Founder & Principal Consultant at Anthropia, a management consulting firm.
Safeguard For Customers
The RBI's ruling thus serves as a much-needed safeguard for consumers who often fall for the lure of quick loans without fully understanding the predatory interest rates that follow. “Easy access to money might seem like a lifeline in the short term, but it often spirals into a debt trap that’s hard to escape. A smarter and more sustainable way to live your lifestyle is by investing for them. It's time we shift from impulsive borrowing to spending by investing,” says Paddy Raghavan, Co-Founder, Multipl, a Securities And Exchange Board of India (SEBI) registered fintech platform.
According to Dutta, some guidelines on capping the interest rate on unsecured loans might be helpful in guiding the lenders, especially the new entrants. For example, the Financial Conduct Authority (FCA) in the United Kingdom prohibits the payday lenders from charging more than0.8 per cent daily on the loan, capped at £15 per day.
With RBI cracking down on Fintechs, it would also mean that borrowers will now have to ensure greater due diligence and follow standard system rules and regulations. Moreover, they should evaluate their ability to repay and other financial obligations before availing credit to avoid falling into a debt trap. Cheap and easy loans that can land you in trouble could be a thing of the past.
