The Reserve Bank of India (RBI) has asked DMI Finance (and several other NBFCs), a leading new-age non-banking financial company (NBFC) and a strategic investor of MUFG, to stop providing credit products. We have taken measures such as requesting From October 21st.
The move has caused stress among fintech companies that depend on co-financing partnerships with leading NBFCs. RBI’s action was prompted by concerns over sky-high interest rates, non-adherence to regulatory principles and inadequate customer valuation guidelines.
FinTech companies typically operate in the subprime lending market, offering unsecured credit at high interest rates, sometimes reaching 35% to 40% per annum. The RBI crackdown, which also affected peer-to-peer lending startups in August, signals a tightening of the regulatory environment for unsecured lending.
Over the past few months, the Reserve Bank has, through a variety of channels, provided regulatory guidance on the need to use regulatory freedoms responsibly and ensure fair, reasonable and transparent pricing, particularly for small loans. We have alerted the target entities. However, unfair and usurious practices continued to be observed both during on-site inspections and from data collected and analyzed off-site.
This increased scrutiny and the potential for further action against small fintechs has led to a reassessment of risks within the sector. As a result, industry experts believe that the underwriting process will become more stringent, executions will slow down, and the overall unsecured lending market growth will be adversely affected.
The Economic Times reported on October 17 that LendingCart, a popular lender for small and medium-sized businesses, is raising internal funds at a valuation of $100 million. The valuation is down from $350 million in the previous round, indicating the increased risks facing the sector.
In August 2024, Bank of Mitsubishi UFJ invested 27,988 million rupees (approximately 49 billion yen) in DMI Finance. This follows a strategic investment of Rs 19.1 billion (US$ 230 million) in April 2023.
