RBI hesitant to give NBFC licences to fintechs with common PE investors
- August 23, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
RBI hesitant to give NBFC licences to fintechs with common PE investors
Subject: Economy
Section: Monetary policy
Key Points:
- With non-banking finance company licenses issued to fintech majors such as Cred and Jupiter, multiple fintechs have pursued the banking regulator for a NBFC license.
- RBI is reluctant to consider their applications. The reason apparently is because of an overlap in captable or capital structures of these fintechs.
| A cap table (or capitalization table) is a document, like a spreadsheet or a table, that details who has ownership in a company. It lists all the securities or number of shares of a company including stock, convertible notes, warrants. |
- Some of the fintecs have certain venture capital investors who have also invested in a some fintechs which has already received NBFC licenses in the last 1 – 2 years.
- RBI generally is not in favour of a business house holding multiple non-bank licences. The same logic has been applied with venture capital and private equity (PE) investors.
- Why Fintecs are applying for NBFC licence?
- After the digital lending guidelines issued last year and the FLDG or first loss default guarantee norms the fintechs have been faced with difficulty in getting bank finance.
- Therefore they needed to choose between operating as a technology provider versus a lender subjected to regulatory directions.
- At this juncture RBI does not want the space to get unduly crowded and hence is not giving too many licences.
| Types of NBFCs: Asset Finance Company (AFC): An Asset Finance Company is a financial institution carrying on as its principal business the financing of physical assets such as automobiles, tractors, lathe machines, generator sets, earthmoving and material handling equipment, moving on own power and general-purpose industrial machines. Investment Company: An Investment Company is any company which is a financial institution carrying on as its principal business the acquisition of securities (shares/stocks/bonds / other financial securities). Loan Company: Loan Company is any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company. Infrastructure Finance Company: Infrastructure Finance Company is a non-banking finance company that deploys at least 75 per cent of its total assets in infrastructure loans, has a minimum Net Owned Funds of Rs. 300 crores, maintains a minimum credit rating of ‘A ‘or equivalent with a Capital to Risk Assets Ratio of 15%. Systemically Important Core Investment Company: Systemically Important Core Investment Company is an NBFC with an asset size of over Rs.100 crores and accepts deposits, involved in the business of acquisition of shares and securities which satisfies certain conditions. Infrastructure Debt Fund: Infrastructure Debt Fund is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. Infrastructure Debt Funds raise resources through issue of Rupee or Dollar denominated bonds of minimum 5-year maturity. Non-Banking Financial Company – Micro Finance Institution (Most Popular): Micro Finance Institution is a non-deposit taking NBFC that is engaged in microfinance activities. NBFC Factor: NBFC Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The following types of entities that are involved in the principal business of financial activity do NOT require NBFC License:
The above types of companies have been exempted from NBFC registration requirements and NBFC regulations of RBI as they are regulated by other financial sector regulators:
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