Mumbai, May 6 (KNN) The Reserve Bank of India (RBI) has cautioned fintech companies, particularly those involved in lending and loan servicing, to rein in their aggressive growth plans.

In a recent meeting with fintech leaders, the regulator expressed concerns about the continued rapid expansion in the sector despite earlier curbs on risk weights for unsecured loans.

"Despite measures to contain risks in unsecured lending, we are not seeing adequate moderation in growth rates. This is a systemic concern," an official source familiar with the matter stated, reported BL.

While some fintechs have argued that the high growth stems from a low base, the central bank appears unconvinced by this reasoning.

According to a lending fintech CEO who requested anonymity, the RBI has advised the sector to target growth rates of around 15-20 per cent going forward.

This directive comes at a time when many fintechs were closing the financial year 2023-24 with growth figures in the range of 35-50 per cent.

The warning has left fintech companies in a difficult position as they grapple with the need to comply with regulatory guidelines while also meeting investor expectations for high returns fueled by rapid loan book expansion.

"If growth slows to 15-20 per cent, generating returns of over 30 per cent becomes nearly impossible. This could derail our profitability targets and IPO plans," another fintech CEO lamented.

To navigate this challenge, some fintechs are exploring alternative lending products like gold loans and loans against property, which may moderate growth rates organically.

Others are considering raising venture debt to bolster return profiles and valuations.

However, pivoting to new business models could also increase cost structures, adding another layer of complexity for fintechs striving to achieve profitability amid moderating growth.

The RBI's stance underscores the regulator's concerns about potential systemic risks arising from the rapid and unchecked growth in the fintech lending space, particularly in the unsecured segment.

(KNN Bureau)