RBI Declines Cred’s Bid to Raise Stake in NBFC Newtap, Citing Governance Concerns
- ByStartupStory | August 18, 2023
The Reserve Bank of India (RBI) has turned down an application by Kunal Shah’s Cred to increase its ownership in the non-banking finance company (NBFC), Newtap Finance. As of now, RBI holds a 23.6% stake in Newtap, with the remaining ownership belonging to Shah. This decision, reportedly rooted in corporate governance and management issues, was reported by Livemint.
Founded in 2021 by Kunal Shah, Newtap Finance acquired Parfait Finance & Investment, an RBI-registered NBFC, to extend lending products exclusively to Cred users. The NBFC, having initially focused on Cred’s user base, now intends to broaden its lending offerings to other businesses and seeks independent funding in both debt and equity. This expansion necessitates a restructuring of Newtap’s shareholding, with Shah currently holding a majority stake.
“Cred applied to take control of the NBFC. But last month, the application got rejected on the grounds of ‘corporate governance and management issues’,” as stated by a source quoted in the Livemint report. While one source denied any mention of corporate governance or management concerns in the rejection letter from RBI, Cred is engaging in discussions with the regulatory body to ascertain the reason for the denial.
Cred has been exploring avenues to raise approximately $50-60 million for Newtap from a mix of new and existing investors, including Sequoia Capital and Singapore’s sovereign fund GIC. This effort aims to maintain a balanced equity-to-debt ratio and cater to a diverse customer base. Presently, Newtap empowers Cred’s “buy now-pay later” product (Cred Flash) and personal loans (Cred Cash), collaborating with other lending partners as well.
According to Registrar of Companies (RoC) filings, Newtap recorded a profit of Rs 5.6 crore in FY23, with revenue from operations amounting to Rs 15.5 crore, a substantial increase from the previous year’s Rs 6 lakh. The company’s “loans and advances” stood at Rs 273 crore. Kunal Shah and Cred collectively invested around Rs 79 crore in equity capital in Newtap, underscoring their commitment to its growth.
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