Happy Monday, everyone!
MTLegal Team is bringing you a weekly update on everything that happened in the fintech space over the past week.
Our goal with these updates is to inform you about any new developments, trends, regulations, or notable events in the fintech sector.
This will help fintech companies plan, protect, and preserve their businesses based on market changes and regulatory updates.
Here’s last week’s update:
A) Fintech Developments on the Rise
1) PB Fintech Eyes Major Healthcare Investment, Awaits Board’s Green Signal
Overview: PB Fintech, the parent company behind PolicyBazaar and PaisaBazaar, is planning a significant move into healthcare with an expected investment of ₹850 crore. Alok Bansal, Co-Founder and Executive Vice Chairman, underscored the necessity of healthcare solutions for India’s middle class, citing over-treatment and fraud in the healthcare system as key issues that need addressing.
Planned Stake: PB Fintech aims to secure a 20-30% stake in the healthcare venture, contingent on board approval, with an initial one-time investment of up to $100 million.
Stock Performance: The company’s shares have seen fluctuations recently, correcting by 15% over the past week, although they rallied on Monday, gaining 4%. Despite this, PB Fintech has doubled in value in 2024, showcasing a 110% rise so far this year.
2) Basic Home Loan Secures ₹87.5 Crore in Series B Funding
Funding Round: Fintech startup Basic Home Loan, which focuses on automating home loans for middle and low-income households, has successfully raised ₹87.5 crore ($10.6 million) in a Series B funding round. The round was led by Bertelsmann India Investments (BII) and CE-Ventures, with further support from existing investors.
Expansion Goals: The newly raised funds will help the company expand its reach, enhance its tech capabilities, and launch new financial products. CEO Atul Monga highlighted plans to extend the company’s FLDG (First Loss Default Guarantee) business to reach a broader audience.
Business Growth: Since its launch in 2020, Basic Home Loan has achieved remarkable success, assisting 250,000 families across 650 districts and disbursing more than $1.1 billion in loans. The company has experienced a 10x revenue growth in the past two years, positioning itself as a key player in India’s housing finance sector.
3) Cred Reports 66% Revenue Growth, Narrows Losses
Financial Performance: Fintech firm Cred has significantly reduced its operating losses to ₹609 crore in FY24, down from ₹1,024 crore the previous year. This improvement comes as Cred’s revenue jumped 66% to ₹2,473 crore during the same period.
Key Growth Drivers: The company attributed this growth to a 36% reduction in marketing expenses and a 34% rise in monthly transacting users (MTUs). Founder Kunal Shah explained that the company’s upfront investment in brand-building has led to higher average revenue per user (ARPU).
User Base: Cred’s platform now boasts over 11 million users, with 35% of MTUs using three or more products. The company continues to focus on expanding its range of financial services.
B) Key Economic Insights from India
1) RBI Urges Small Finance Banks to Practice Responsible Lending
Guidance Issued: The Reserve Bank of India (RBI) has called on small finance banks (SFBs) to adopt more responsible lending practices, especially given that their primary customers are marginalized and underserved communities. RBI Deputy Governor Swaminathan J highlighted concerning practices such as high-interest rates and inadequate grievance redressal mechanisms.
Governance Focus: Swaminathan emphasized the need for SFB boards to review their financial inclusion efforts and ensure they are genuinely reaching low-income households and rural populations. He also stressed the importance of good governance, proper succession planning, and ethical lending practices.
2) NBFCs Turn to Alternative Funding Amidst Slow Bank Lending
Funding Shift: Non-Banking Financial Companies (NBFCs) are increasingly exploring alternative funding options, such as non-convertible debentures (NCDs), commercial papers (CPs), and foreign currency borrowings, as bank loans become less accessible. According to CRISIL Ratings, the share of bank loans in NBFC borrowings dropped to 47% by June 2024.
Future Outlook: CRISIL predicts that NCDs and securitization will play a bigger role in NBFCs’ financing strategies, particularly for entities rated AAA and AA. NBFCs are also expected to benefit from a potential repo rate cut, which could further boost bond market activities and securitization efforts.
3) UPI Achieves 15 Billion Transactions Milestone in September
New Record: Unified Payments Interface (UPI) hit a new milestone in September, surpassing 15 billion transactions in a single month for the first time. The total transaction value during this period amounted to ₹20.64 lakh crore.
Growth Momentum: UPI’s growth continues to be driven by its ease of use and widespread acceptance. The platform saw a 42% year-on-year increase in transaction volume, with average daily transactions exceeding 500 million.
Dominant Players: While PhonePe led the UPI ecosystem with a 48.36% share in August 2022, Google Pay and Paytm followed closely. New entrants like CRED and Flipkart have also emerged as strong competitors in the digital payment space.
C) Latest Business Shifts in Fintech
1) India’s Fintech Revolution Embraces Blockchain for Future Growth
Blockchain’s Rise in Fintech: India is emerging as a key player in the global fintech space, with blockchain technology set to transform its financial landscape. International giants like MasterCard and R3 are driving blockchain innovations, and Indian start-ups are following suit, positioning the country at the forefront of this digital revolution.
RBI’s Digital Currency Exploration: The Reserve Bank of India (RBI) is actively pursuing the development of a digital rupee, signaling India’s bold ambitions in the realm of digital currencies. This initiative aligns with the nation’s broader goal of leading the global digital economy.
Collaborations for Skill Development: To leverage blockchain’s full potential, partnerships between Indian universities and financial institutions are crucial. By emulating models like Ireland’s blockchain ecosystem, India can address the current skills gap and cultivate a workforce proficient in blockchain and related technologies.
Education and Regulation: Alongside technological advancements, a robust regulatory framework and comprehensive blockchain education programs are essential. These initiatives will foster innovation while ensuring consumer protection, enabling India to capitalize on blockchain’s capabilities, particularly in areas like cross-border payments and supply chain transparency.
D) Key Regulatory Developments (RBI)
1) RBI Draft Circular Tightens Rules for Group Entity Operations
New Business Regulations: The Reserve Bank of India (RBI) has issued a draft circular proposing stricter guidelines for group entities of banks to prevent them from circumventing existing regulations. The move emphasizes that group entities should not undertake business activities that banks themselves are not allowed to perform.
Investment Restrictions: The draft also suggests limiting banks’ investments in non-financial companies and capping their stake in any company at 30%. Furthermore, banks are restricted from investing in certain Alternative Investment Funds (AIFs) and must comply with specific rules when sponsoring asset reconstruction companies (ARCs).
Ring-Fencing Risky Activities: Another key aspect of the circular is the restriction on risk-sharing activities, which must be conducted through a group entity rather than within the bank itself. This ensures more accountability and regulatory oversight, minimizing financial risk to the institution.
2) RBI Penalizes Jai Bhawani Sahakari Bank for Compliance Lapses
Regulatory Breach: The RBI has imposed a ₹1.50 lakh penalty on Jai Bhawani Sahakari Bank Ltd., Pune, for violating provisions under the Banking Regulation Act related to Know Your Customer (KYC) norms and deposit account maintenance. The action stems from an inspection conducted by the RBI, which found the bank had failed to transfer unclaimed deposit amounts and did not regularly review risk categorization of accounts.
KYC and Compliance: The bank also neglected its responsibility to review inoperative accounts annually, which is a critical component of maintaining proper financial hygiene. This penalty highlights the importance of strict adherence to regulatory guidelines to safeguard both the bank and its customers.
3) RBI Releases September 2024 Lending and Deposit Rates Data
Lending Rates Hold Steady: According to data released by the RBI, the weighted average lending rate (WALR) on fresh rupee loans stood at 9.41% in August 2024, a slight increase from 9.40% in July. Meanwhile, the WALR on outstanding rupee loans remained unchanged at 9.91%.
Deposit Rates: The data also revealed that the weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits was 6.46%, with a marginal decrease from the previous month. On outstanding rupee term deposits, the rate stood at 6.93% for August 2024.
Benchmark-Based Loans: Loans linked to the External Benchmark-Based Lending Rate (EBLR) made up 57.5% of floating rate rupee loans by the end of June 2024, indicating a growing reliance on this benchmark for pricing loans.
4) India’s Balance of Payments Data for Q1 FY 2024-25 Shows Marginal CAD Increase
BoP Update: Preliminary data on India’s balance of payments for the first quarter of 2024-25 reveals a marginal widening of the current account deficit (CAD) to $9.7 billion, equivalent to 1.1% of GDP. This was primarily driven by a rise in the merchandise trade deficit, which increased to $65.1 billion during the quarter.
Service Sector Resilience: Net services receipts grew significantly to $39.7 billion, with exports in sectors like computer services and transportation showing robust growth. Private transfer receipts, such as remittances from overseas, also increased to $29.5 billion during the quarter, supporting the overall BoP.
FDI and Portfolio Investment Trends: While net foreign direct investment (FDI) inflows rose to $6.3 billion, portfolio investments saw a marked decline compared to the previous year, signaling a more cautious approach from foreign investors. Despite this, India’s foreign exchange reserves saw an increase of $5.2 billion during the quarter.
We hope you found this update insightful.
MTLegal Team is here to support everyone in the fintech sector—whether it’s for licensing, registration, or contractual needs.
We’ve got your back.
Contact us today, and let’s protect the business you’re building!
