26, February, 2024
HomeBusinessIndian Banks Adjust Strategies: Fintech Partners Urged to Limit Small Personal Loans

Indian Banks Adjust Strategies: Fintech Partners Urged to Limit Small Personal Loans

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Top Indian banks and financial institutions are urging their fintech collaborators to restrict the issuance of small personal loans, reacting to recent regulatory scrutiny, according to three banking and one industry source.

This move follows the Reserve Bank of India’s recent imposition of stricter capital requirements for personal loans and lending through NBFCs, expressing concerns about potential increased risks associated with the rapidly growing business.

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Paytm, among others, has decided to slow down on sub-50,000-rupee loans ($600), making it the first to make such an announcement in response to the regulatory directives. Banks are now signaling their fintech partners to pull back from the less-than-50,000-rupees loan category while maintaining their collaborative relationships.

While the banks don’t intend to completely cut funding to fintech partners, they express discomfort with an extensive focus on small-ticket personal loans. The industry’s overall loan growth is expected to moderate to 12%-14%, down from above 15% currently, impacting the availability of such loans through smaller fintechs that have collaborations with banks and NBFCs.

This cautious approach is driven by increased regulatory monitoring around a bank’s growth and asset quality. Some banks are proactively avoiding regulator scrutiny by selectively limiting their involvement in small loan segments for the time being.

Paytm’s announcement to rein in small loans led to a 20% decline in its stock price and also impacted Aditya Birla Capital, a significant lending partner associated with Paytm’s small-ticket loans. Aditya Birla Capital has not provided comments on these developments.

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The regulatory landscape is encouraging banks and financial institutions to exercise caution, emphasizing the need for prudence in small-ticket personal loans to avoid potential risks and comply with regulatory requirements.

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