The Reserve Bank of India (RBI) has once again tightened its grip on the fintech industry. A move has sparked debates over whether its actions are stifling innovation. Its crackdown this week on prominent non-banking financial companies (NBFCs) like Navi Finserv and DMI Finance highlights increasing tension between regulators and fintech startups.
Zeta founder Bhavin Turakhia has long emphasized the need for startups to view the “fin” and “tech” sides of fintech as separate entities. He pointed earlier this year in March that banking is about risk management and fintech founders should focus on leveraging technology to reduce risks. His perspective is not shared by many in the fintech space and especially after the recent action of RBI.
The move of RBI to halt lending by these NBFCs due to supervisory concerns has thrown a wrench into the digital lending ecosystem. Many founders feel they are caught in an endless game of regulatory catch-up. Every time they think that they have figured out how to operate within the rules.
The concerns of RBI are valid considering excessive interest rates, non-compliance with the Fair Practices Code and more. The lack of transparency around certain terms leaves fintech players frustrated. It seems that startups are expected to toe the line without fully understanding where that line is.
The regulatory unpredictability creates a chilling effect on innovation. Compliance has become less of a checklist and more of a moving target. The digital lending space has already felt the impact of regulatory disruptions. The ongoing crackdowns only amplify the sense of uncertainty in the industry.
Critics argue that it needs to be more transparent and consistent. Fintech startups thrive on agility and innovation, but they cannot scale if they are constantly hampered by opaque regulations and unclear compliance requirements.
The reality is that fintech founders must now navigate an environment where regulation is not just an obstacle. Compliance has become the primary focus. It risks stifling the very innovation that could transform India’s financial landscape.
Fintech is a promising sector but as long as regulatory uncertainty remains. Startups will find it hard to fully realize their potential. It is unclear who will emerge victorious.
