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Indian FinTechs Struggle After Crackdown on Unsecured Loans

Reserve Bank of India

India’s recent crackdown on unsecured consumer loans has reportedly placed increased pressure on FinTech lenders.

The Financial Times (FT) examined the state of companies such as Paytm in a report Sunday (Dec. 17), following the Reserve Bank of India (RBI) announcing last month that lenders had to change their capital requirements.

The RBI — India’s central bank and banking regulator — made this change after seeing an increase in delayed payments, and said it wanted to prevent ballooning consumer debt and delinquencies, the FT report said.

RBI Governor Shaktikanta Das cautioned banks to avoid “all forms of exuberance” after instituting the measures.

Since then, Paytm’s shares have dropped upwards of 30%, with Berkshire Hathaway selling its 2.5% stake in the firm soon after the RBI’s rule changes.

Paytm announced earlier this month that it would make fewer small loans — those below 50,000 rupees, or $600 — in response to the RBI’s rule changes.

Instead, the company has said it aims to expand its loan distribution business by targeting higher ticket loans to consumers and merchants in the above-50,000-rupee category. The move reportedly caused brokers such as JPMorgan, Goldman Sachs and Citi to downgrade Paytm.

As the FT notes, things are even tougher for smaller lenders. For example, Zestmoney, which also offered unsecured personal loans and was struggling even before the new regulations, is shutting down, the report said, citing media reports and a source familiar with the matter.

“There were a lot of players who had mushroomed trying to do lending in the Indian digital market,” Peeyush Dalmia, a senior partner at McKinsey, told the FT, also warning that the regulation would cause some firms to collapse. “The more serious folks who were very focused on profitability, very focused on risk, they’ll start to benefit.”

India’s new measures are happening as “regulators are tightening their collective gaze on the risks of non-bank firms,” as PYMNTS wrote last week.

For example, the U.S. Treasury Department’s Financial Stability Oversight Council (FSOC) announced in November the adoption of an analytic framework for financial stability risks and updated guidance for non-bank financial company determinations.

And as noted here Sunday, China has issued new measures for non-bank payment companies designed to prevent financial crime.