The digital lending industry is preparing to approach the Reserve Bank of India (RBI) with a request to ease tightened regulations on unsecured lending, according to senior industry executives. Non-banking finance companies (NBFCs) have halted short-duration credit products, directly impacting fintech lending platforms known as loan service providers (LSPs). This disruption has raised concerns that customers in urgent need of short-term loans may be turning to informal moneylenders.
Industry Gathers Data to Assess Impact
“We are collecting data to understand the on-ground impact of the RBI’s stance on interest rates. We have engaged with senior bankers, and non-bank officials, and sought a meeting with the RBI’s Department of Regulations,” said a senior executive from the fintech lending sector.
A meeting at the end of last year brought together stakeholders from the digital lending industry, including banks and NBFCs, to discuss short-duration loans. The Department of Financial Services Secretary and lending firms raised the issue during a meeting on 7 January in New Delhi.
Short-Term Loans Phased Out
Executives from multiple fintech platforms that source loans from partner NBFCs confirmed that they are turning away customers seeking one-month to three-month credit products. Industry data suggests that this shift has already impacted the growth of fintech lending.
According to the Fintech Association for Consumer Empowerment (FACE), fintech lenders disbursed Rs 48,969 crore in the first half of FY25, significantly lower than the Rs 91,624 crore sanctioned in the previous fiscal year.
On 18 January, reports indicated that fintech lenders had withdrawn ultra-short-duration products such as ‘advance salary’ loans due to increased regulatory scrutiny.
Concerns Over Interest Rates and Loan Pricing
While the RBI has not imposed an official cap on interest rates, senior bankers have advised fintech lenders to avoid ‘usurious’ charges. Credit card interest rates, which are among the highest, can reach up to 45% per annum.
“We are ensuring that the effective interest a customer pays on a loan remains below 30% to avoid classification as an usurious loan,” said the chief executive of an NBFC that partners with fintech lenders.
Leading players such as Fibe, Kreditbee, and Moneyview have responded by setting a six-month tenure as the minimum loan duration.
Balancing Costs and Affordability
A second industry executive explained that while short-term loans may appear to carry high interest rates, the total amount paid by the customer over a short period is relatively low.
“If these products are not priced higher, serving customers at scale becomes financially unviable,” he said.
Despite increased regulatory scrutiny, most large fintech lenders reported strong profits and revenue growth in FY2024.
“While we do not want to push consumers into a debt trap, there is a clear demand for short-term credit. If regulated fintechs do not provide these loans, customers may resort to informal lenders, where risks are significantly higher,” he added.
Redesigning Loan Offerings
Fintech lenders are now adjusting their products to align with regulatory expectations. Many have introduced longer-term loans, requiring customers to repay over six months to a year.
“In doing so, we are effectively disbursing higher loan amounts, which may exceed what some borrowers can comfortably repay. A blanket ban on short-duration products should be reconsidered,” the first executive stated.
The RBI tightened regulations after a surge in unsecured personal loans last year. Industry data indicated that some consumers were taking loans from one platform to repay debts on another, raising concerns about financial stability.
With discussions ongoing, fintech lenders hope to find a balanced regulatory approach that allows for responsible short-term credit while addressing the RBI’s concerns about excessive borrowing and high interest rates.
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