RBI’s brakes on lending largesse a timely move; and other top tech, startup stories this week

Hello, this is Pratik Bhakta in Bengaluru. A couple of weeks back, in this same column, I wrote about how fintech lenders are finally seeing better days, after years of suffering a business slowdown due to macro issues such as the default of IL&FS which created a debt crisis, the Covid-19 pandemic and the Chinese loan app scam.

Now, the Reserve Bank of India (RBI) has stepped in to rein in what it probably views as an unchecked and unwise lending spree. Striking a note of caution, the sector regulator has asked banks and NBFCs, the main source of funds for fintech lenders, to go slow on unsecured lending. This move could have a deep impact on fintechs which are fast-growing startups mostly focused on unsecured consumer lending.

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RBI says: Back on October 6, the RBI Governor Shaktikanta Das spoke about the need for banks to tighten lending norms. “Certain components of personal loans are, however, recording very high growth. These are being closely monitored by the Reserve Bank for any signs of incipient stress. Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, and address the build-up of risks,” Das had said.

Now, the RBI has increased the risk weightage of these loans for banks and NBFCs by 25% across unsecured loan categories.

Jargon Buster:
Risk weightage is a method of calculation which implies that for every loan extended, an adequate amount of capital should be held by banks. So now banks will have to keep aside more for provisions and to maintain their capital adequacy. This protects banks from going bankrupt in case they face large-scale defaults in their portfolios.

Main Impact: With restricted lines of credit available, fintechs might need to slow down. While this step will obviously help lenders protect their capital base and focus on recoveries, it will put a check on the march of fintechs who depend on traditional lenders for business. Co-lending could be affected as well.

Early-stage fintech lenders need to grow quickly. First, to push up their valuations, and second, to create a meaningful impact in the ecosystem. A tightening of the credit pipeline may halt them in their tracks.

The timing of the central bank’s move is significant, coming as it does after two or three years of struggles, just when fintechs were seeing profits, scaling up their loan books, and attracting investor attention.

Also read: ETtech Unwrapped | Digital lending at an inflection point

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Decoding RBI’s move: But why is the central bank so alarmed now?

This data set between September 2023 and 2021 has the answer:

Consumer durable loans: Grew 57.5% to Rs 20,956 crore from Rs 13,304 crore.

Credit card outstanding: Grew 64% to Rs 2.17 lakh crore from Rs 1.32 lakh crore.

Other personal loans: Grew 57% to Rs 12.4 lakh crore from Rs 7.9 lakh crore.

Medium small and micro business loans: Grew 21% to Rs 34.7 lakh crore from Rs 28.7 lakh crore. (the average ticket size of these loans is typically larger)

This massive, if somewhat alarming, loan growth has caught the attention of the central bank, which now wants banks and NBFCs to slow down and focus on more secured assets.

And the fallout?
For a start, consumer sentiment is bound to be impacted. Loans will undoubtedly be a little more expensive than in earlier times. The hoopla around credit cards might die down a little bit as well. And banks, naturally, will get more selective while lending.

This, overall, should be all to the good. It will put the industry back on firmer ground, in turn strengthening the financial stability of our economy. Needless to say, it is essential to avoid a catastrophe like the subprime mortgage crisis of 2008 in the US which pushed most of the developed world into a deep recession back then.

Erring on the side of caution, as suggested by the RBI, may well be justified after all.

Fintech Corner


Fintech lenders may face the brunt of RBI’s tightening of capital norms for unsecured lending: The RBI’s recent directive requiring lending institutions to increase their risk weightage or the amount of capital to be set aside against unsecured loans disbursed by them could weigh down the country’s nascent fintech lending sector.

PayU eyes B2B pay, credit play under new top brass: PayU is getting into new business areas, exploring options around business-to-business payments and supply chain financing. The ecommerce payments major wants to focus on QR codes for offline merchant payments, staying away from the expensive point-of-sales terminal business.


Razorpay’s ‘reverse flip’ to India may entail $300 million tax payment in the US: Digital payments major Razorpay might have to shell out $250-300 million as tax payment in the US, where it is currently domiciled, as it plans to move its parent firm to India through a cross-country merger, sources told ET.

Flipping GFX.

P Vasudevan named new boss of RBI’s fintech department: The Reserve Bank of India (RBI) has appointed P Vasudevan, a central banker for 30 years, as the head of its fintech department.

Knight Fintech in talks to raise $25 million: Banking infrastructure and lending solutions provider Knight Fintech is in the final stages of closing a $25 million funding round led by Accel Partners.

Also read | RBI returns Instamojo’s PA application; firm intends to reapply

Other Top Stories


1mg overtakes PharmEasy in market share in top order change: Digital-owned 1mg has pipped PharmEasy to the top of the country’s e-pharmacy market in terms of gross merchandise value (GMV) after a year of consolidation and tighter cost controls at top firms in the sector.

The changing order in online pharmacy_Graphic_ETTECH

Ranjan Pai has a Powar plan for family office Claypond Capital:
Manipal Group chairman Ranjan Pai is assembling a full-fledged professional team to capitalise on attractive valuations. Claypond Capital, Pai’s family office, is in talks with veteran banker Shyam Powar to head the family investment office.

Narayana Murthy moots sops to fuel flow of domestic capital to startups: Infosys cofounder NR Narayana Murthy suggested incentives for private and public funds to set aside a portion of their capital for boosting domestic investment in Indian startups in an interview with ET.

ETtech Full Stack by Samidha Sharma | Amid AI frenzy, the ‘doom loop’ defines the current state of Silicon Valley: On meeting founders, investors, and ecosystem participants in the San Francisco’s Bay Area, the mood seems pretty sombre despite the disproportionate amount of focus on AI which makes the outside world feel it’s all exuberance in the Valley. The level of energy is visibly missing as seen through empty offices.

Subscribe to Full Stack here.

ChatGPT maker OpenAI’s board ousts Sam Altman as CEO | OpenAI CEO Sam Altman was removed from his position after the board lost confidence in his leadership abilities, the company announced on Friday in a blogpost. Mira Murati, OpenAI’s chief technology officer, will step in as interim CEO, the company said, adding it has initiated a formal search for a permanent leader to succeed Altman.

BharatPe vs Ashneer Grover

Ashneer Grover, his wife Madhuri Jain_BharatPe_2

I’m not a flight risk, will cooperate with EOW: Ashneer Grover | BharatPe cofounder Ashneer Grover on Friday said he would cooperate with the Economic Offences Wing (EOW) hours after he and his wife Madhuri Jain were stopped at the Indira Gandhi International Airport based on a Lookout Circular (LoC) issued against the duo

Ashneer Grover vs BharatPe - a timeline_NOV_2023_Graphic_ETTECH

Also read | The so far: BharatPe vs Ashneer Grover

IT Sector Updates


IT sector’s 30% revenues may be from non-US, UK markets by 2030: The prevailing Anglo-American influence on India’s $245-billion technology outsourcing industry is expected to witness a more cosmopolitan shift. The global business share is projected to rise to 30% by the end of this decade.

Infosys to give 80% variable pay to employees for September quarter: Infosys will roll out its second quarter performance bonus to select employees at 80% payout this month, the company said in an email.

Indian IT firms stare at bleak holiday quarter on grim outlook: The holiday quarter might not bring much celebration for Indian IT majors. Hyperscalers such as Microsoft, Alphabet, Amazon, Meta, Apple, and Tesla have indicated a weakening demand environment, signalling that turbulent times are likely to continue.

Also read | NITES alleges forced employee transfers at TCS, files complaint

Gaming Industry

Game streaming companies

Indian game streaming companies eyeing a bigger play abroad: Loco and Rooter, are expanding operations beyond the domestic market as they prepare to take on the likes of YouTube and Amazon’s Twitch in foreign territories.

Gamers bypass rules to play real-money games: Gaming enthusiasts are devising innovative ways to continue playing on real-money gaming apps banned across states like Telangana, Odisha, Arunachal Pradesh, and Sikkim.

ETtech Deals Digest

The funding climate for Indian technology startups deteriorated year-over-year, with $29.7 million deployed across 6 funding rounds in the week from November 13 to 17. In the comparable week in 2022, startups had raised $189 million across 34 funding rounds.

Overall funding trend for Indian startups_11-17 Nov, 2023_ETTECH

The deals in the 2023 week averaged at about $4.95 million per deal, versus $5.6 million per deal in 2022.

Top funding rounds during_11-17 Nov, 2023_ETTECH