Despite three months of engagement and continued discussions with the banking regulator, fintechs may not have cracked the code yet to operate as non-bank lenders. Highly placed sources say the Reserve Bank of India is reluctant to issue non-bank finance company or NBFC licences to fintechs.

PhonePe, Razorpay, BharatPe, , OkCredit and NiYo which operates as neo-bank, are among the well-known names who had approached the banking regulator for NBFC licence, but their requests have been turned down.

Secure licenses

Fintechs are now making representations through the industry bodies to clear the path for secure licenses. “We are in touch with the RBI on this matter,” said Ram Rastogi, Chairman, Fintech Association for Consumer Empowerment (FACE).

However, sources say that RBI has put the matter on hold for now. “It (RBI) has become a bit liberal in considering NBFC PA/PG (payment aggregator/ payment gateway) licences, but a generic NBFC licence still seems to be a no-go zone,” said a source.. Issues relating to ownership of fintechs, especially pertaining to origin of capital flowing into these companies is one of the main concerns for the regulator.

“The colour of money flowing into these companies is highly questionable as its often through tax havens and to be in the lending business, such an ownership structure won’t work,” said another highly placed source. The practice of charging exorbitant rate of interest is another big deterrent for the RBI to permit fintechs in the lending arena.

Wait and watch

Regulator’s comfort with the PhonePe – ZestMoneydeal will set precedence for fintechs aspiring for NBFC licences. Sources say with the RBI turning down PhonePe’s application for a lending licence, Zest Money acquisition will open the possibility.

“In a sense, it’s backdoor attempt to secure an NBFC licence,” said a CEO of a fintech who didn’t want to be named. “If this deal goes through, buy now pay later (BNPL) companies which are licensed to operate as NBFCs, would turn into attractive hunting ground for fintechs,” he added. According to news reports, PhonePe is set to acquire ZestMoney for $200 – 300 million and the deal is likely to be closed in about a month.