FCC, DLAI taking required actions to qualify for RBI's fintech SRO license

The development to form SROs for the fintech industry came after the central bank on May 30 released its final guidelines for financial technology firms to create an SRO aimed at enforcing regulatory standards and fostering transparency in the sector.

After the Reserve Bank of India (RBI) granted an SRO-FT (self-regulatory organisation-fintech) licence to the Fintech Association for Consumer Empowerment (FACE),  applications for other SROs are under review. The Fintech Convergence Council’s (FCC's) application has been returned with provisions for resubmission, and the Digital Lending Association of India’s (DLAI's) application is being examined, people aware of the developments told Moneycontrol.

The RBI, in a press release on August 28, said it had received three applications for SRO-FTs, and each was  evaluated against established requirements. One was granted a licence, and of the remaining two applications, one had been returned with provisions for resubmission upon meeting specific criteria, and the other was currently being examined, the RBI said.

Sources said that work on FCC's  application is underway, while DLAI is looking forward to further communication from the regulator in this regard. “We are waiting for the regulator’s comments and communication concerning our application,” a source aware of the development said.

Need for SROs

The need to form SROs for the fintech industry arose after the central bank, on May 30, 2024, released its final guidelines regarding SROs for enforcing regulatory standards and fostering transparency in the sector. Under the 'Framework for Recognising Self-Regulatory Organisation(s) for the Fintech Sector,’ the RBI said that SROs  should be free from influence and subscribe to regulatory expectations.

On September 6, 2023, RBI Governor Shaktikanta Das urged fintechs to form SROs over the next year. "I would like to use this opportunity to urge and encourage fintechs to establish  self-regulatory organisations themselves," Das said in a speech at the Global Fintech Fest (GFF), 2023.

The RBI has been watching the fintech space and has introduced measures for the same, including  norms for digital lending in September 2022 .

Growth in fintechs

Though the RBI has repeatedly asked fintechs to go slow on their loan book growth, the sector doesn’t seem to be in sync with the RBI's ask on this front. For instance, fintech firms recorded a 49 percent jump in total loan disbursements in FY24, a report by FACE showed.

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Total disbursements jumped to Rs 1.5 lakh crore and the volume of disbursements rose 35 percent on-year to nearly 10.2 crore. This accounts for a third of the total retail lending, or personal loans,   as categorised by the RBI. The average ticket size rose to Rs 12,648 in 2023-24, up 14 percent from Rs 11,094 in  FY23.

The FACE report also indicates that 29 of the 83 member companies  (35 percent) were profitable in FY24, compared to two-thirds in FY22.