RBI rejects applications of fintech firms for NBFC license

• ByStartupStory     |    November 29, 2022

According to top sources, the Reserve Bank of India is reluctant to issue non-bank finance companies or NBFC licenses to fintechs. PhonePe, Razorpay, BharatPe, OkCredit, and NiYo which operate as neo-bank, are among the well-known names who had approached the banking regulator for NBFC licenses, but their applications have been rejected.

Fintechs are now making representations through the industry bodies to clear the path for secure licenses. “We are in touch with the RBI on this matter,” said Ram Rastogi, Chairman of, Fintech Association for Consumer Empowerment (FACE).

However, sources say that RBI has put the matter on hold for now. “It (RBI) has become a bit liberal in considering NBFC PA/PG (payment aggregator/ payment gateway) licences, but a generic NBFC licence still seems to be a no-go zone,” said a source. Issues relating to ownership of fintechs, especially pertaining to origin of capital flowing into these companies is one of the main concerns for the regulator.

“The colour of money flowing into these companies is highly questionable as its often through tax havens and to be in the lending business, such an ownership structure won’t work,” said another highly placed source. The practice of charging exorbitant rate of interest is another big deterrent for the RBI to permit fintechs in the lending arena.

Regulator’s comfort with the PhonePe – ZestMoneydeal will set precedence for fintechs aspiring for NBFC licences. Sources say with the RBI turning down PhonePe’s application for a lending licence, Zest Money acquisition will open the possibility.

“In a sense, it’s backdoor attempt to secure an NBFC licence,” said a CEO of a fintech who didn’t want to be named. “If this deal goes through, buy now pay later (BNPL) companies which are licensed to operate as NBFCs, would turn into an attractive hunting ground for fintechs,” he added.

Follow Startup Story