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RBI's freeze on PPI-led lending: Industry bodies to write to RBI, Govt on their stance on supporting innovation

The representations will seek further clarity to assess the impact of RBI’s notice on lending through PPIs.

June 22, 2022 / 05:52 PM IST
Representative image: fintech

Representative image: fintech

Industry bodies including the Internet and Mobile Association of India (IAMAI) and the Payments Council of India (PCI) are preparing to make representations to the Reserve Bank of India (RBI) and various government arms, questioning their stance on supporting innovation and financial inclusion.

This comes two days after the RBI issued a clarification to fintechs, saying that loading credit lines into prepaid payment instruments (PPIs) such as wallets and prepaid cards is not permitted. The move has threatened to junk the business models of a number of fintechs that have seen tremendous growth over the past year such as Slice, Uni, PayU’s LazyPay, KreditBee, EarlySalary etc.

According to multiple sources, the letters will be addressed to RBI Governor Shaktikanta Das, the Finance Ministry, and the Prime Minister’s Office with a core objective of seeking clarification on the two-paragraph long notice that was shared with fintechs.

“The notice has caused a lot of confusion not just for fintechs but also for customers and investors. These fintechs will seek clarity on what RBI exactly wants so they can plan their business models accordingly,” said one of the sources on the condition of anonymity.

The second ask is going to be to make it a level playing field for non-banking financial companies (NBFCs), which are the actual lenders in these arrangements. The industry bodies are likely to request the regulator to make it easier for them to issue proper credit cards.


In an update on April 21 as part of the Master Directions for credit, debit and co-branded cards, the central bank had said that registered NBFCs shall not undertake credit card business without prior approval of the Reserve Bank.

The positive though was that now NBFCs can issue credit cards if they are successful in securing the regulator’s nod, which was prohibited earlier. NBFCs except state-run SBI Cards and BoB Cards were not allowed to issue credit cards until this update. The regulator is expected to set stringent requirements for NBFCs that wish to secure a nod for the same.

“The move is the opposite to that of RBI’s stance on supporting and fostering innovation. It is also against the government’s Digital India and Startup India initiatives because investors are now worried whether we are going the China way when it comes to regulations,” the source added.

Over the past few years, these fintechs with banks and NBFCs as their lending and banking partners claim to be serving the underserved, especially with credit penetration being abysmally low in India. This is in-line with RBI and the government’s agenda to further financial inclusion, however the central bank has been working towards regulating various aspects of fintech.

In a speech on June 17, RBI Governor Shaktikanta Das had focused on how technological disruptions are shaping the financial sector and the challenges and opportunities it presents.

The Governor had also highlighted that the need to regulate fintechs emanates from the challenges they pose to the financial system and the new risks they carry. These risks have a bearing on overall financial stability and market integrity, he had said.

On the awaited digital lending norms, the Governor had said, “The Reserve Bank will soon issue suitable guidelines and measures to make the digital lending ecosystem safe and sound while enhancing customer protection and encouraging innovation.”

The central bank has also voiced concerns around Big Tech in fintech and how it poses a systemic risk, including overleveraging customers.

On June 17, the RBI also released a blueprint for regulation of payment systems that aims to provide users with fast, accessible and affordable e-payment options.

Under the vision 2025, the RBI announced regulation of BigTech and FinTechs, buy-now-pay-later (BNPL) systems and the introduction of a central bank digital currency (CBDC), among others.
Priyanka Iyer
first published: Jun 22, 2022 05:52 pm
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