India crackdown on non-bank lending to hit fintech investments

Deal activity in Q2 was 25% lower than the previous quarter.

Things are not boding well for fintech investment in India amidst the local regulator’s continuing crackdown on fintech startups and implementation of stricter lending rules.

Investments in fintech startups in India plummeted 42% in the second quarter of the year compared to Q1, reaching only US$1.8b, according to data compiled by Fintech Global. 

India’s deal activity in Q2 was also 25% lower than Q1, with 96 deals in total.

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Fintech Global warned that India may have yet another troubling quarter in Q3 following the Reserve Bank of India’s decision to bar the practice of loading non-bank prepaid payment instruments (PPIs). Dozens of fintechs have reportedly been informed of this change.

Non-bank PPIs is a primary way that Indian start-ups facilitate lending. With the RBI’s ban, non-banking financial companies (NFBCs) cannot give credit lines to merchants, whose money can now only be routed to regulated bank accounts of customers.

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Fintech start-ups are reportedly speculating that banks have lobbied the RBI to reach this decision, Fintech Global added.