FINTECHS FACE RBI RED FLAG
Business Today|September 06, 2020
Fintechs’ ties with banks and NBFCs have come under the Reserve Bank of India's scanner for shoddy practices. Here is the inside story
ANAND ADHIKARI
FINTECHS FACE RBI RED FLAG

One bad apple spoils the entire basket,” says the founder of a Mumbai-based financial technology company that is into digital lending. This young start-up entrepreneur is talking about overambitious fintech players who are chasing unbanked customers without proper risk assessment just to gain volumes and resorting to unethical collection and recovery practices. He gives an example of a Gurgaon-based fintech company they were planning to buy a year ago and which they found was accessing borrowers’ contact details at the time of onboarding through its app. “People, when they need money, give permission to apps that seek access to contacts, SMSes, location,” he says. The company was using these details for loan recovery by calling up borrowers’ friends and family members. When the start-up founder questioned the company executives saying the practice was against the Reserve Bank of India's (RBI’s) fair practices code, the response was: “Nobody notices. So far, we haven’t faced any issue with the regulator on this.”

Such over-confidence stems from the fact that fintechs registered as NBFCs are loosely regulated whereas pure technology companies (which generate business leads for banks and NBFCs) are not even required to register with the RBI.

This is about to change. The RBI is slowly realising the extent of these malpractices as fintech, with the passage of time, come to occupy a bigger and bigger space in the financial services industry.

RBI's Red Flag

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