India Banking Research
Revolut redoubles its efforts in India
Revolut has long had its eye on the India market, where it has sought to carve out a niche in payments before moving into trading, investment and credit. More than three years into the foray, Revolut does not have a lot to show for it, though in April, the Reserve Bank of India (RBI) granted the UK fintech in-principle authorization to issue pre-paid instruments (PPI), including prepaid cards and wallets. We understand it took so long in part because of data localization requirements.
In the past six months, Indian regulators have been active tightening regulation of fintechs in different industry segments. The most notable action came earlier this year with the effective shutdown of Paytm Payments Bank. It is hard to say exactly why the Reserve Bank of India (RBI) is taking a harder line – but we suspect it may have something to do with the industry reaching a certain stage of development and the RBI believing that once they have been allowed enough space to grow, digital finance companies should be bound by similar constraints as incumbent financial institutions. One of the areas where they are focusing their attention is peer-to-peer (P2P) lending.
Fintech funding in India shows resilience in Q3
2023 may end up being a year that many fintechs want to put behind them. With interest rates high, inflation stubborn and the global economy a tad wobbly, it has not been the best year for fintech funding, even in Asia Pacific, where so much of the fintech development story has been taking place in recent years. That said, funding has been more resilient in India than in many other markets, especially in the third quarter of the year.
Fintech in India has a bright future, with caveats
In recent years, India’s fintech market has come into its own, and is now one of the world’s largest. In Asia, it has arguably become the single most important market. A new report by Elevation Capital, which has offices in Bengaluru and Salt Lake City, Utah, finds that India’s fintech ecosystem has grown especially fast since 2018. Funding increased from US$2.2 billion that year to US$5.8 billion by 2022, while the subcontinent’s share of global fintech funding jumped from 2.9% in 2018 to 6.5% in 2022.
India's fintech investment surges in H1 despite pandemic
The pandemic didn't stop India's fintech investment from surging year-on-year in the first half of 2020. A new KPMG report shows that Indian fintechs raised US$1.7 billion from January to June, more than double the US$726.6 million during the same period a year ago. There were 70 deals in total.
What went wrong at India's Yes Bank?
Yes Bank, one of India's largest private lenders, posted a US$2.5 billion loss in the October-December period as non-performing assets surged to 19% from just 2% a year earlier. To stymie further deterioration, the Reserve Bank of India (RBI) stepped in and took over Yes Bank in February. The bank's founder, billionaire Rana Kapoor, was arrested and accused of money laundering and taking kickbacks. Kapoor denies the charges.
Yes Bank's downfall is a cautionary tale of what can happen when a lender in an ascendant emerging market gets too big too fast, while taking on excessive risk. Yes Bank was the most gung-ho of India's non-public lenders established in the past two decades. Deep-pocketed foreign investors liked its focus on growth, which helped Kapoor and his colleagues ensure a steady flow of funding.
Fintech is generally considered a force for good in India, which has a large unbanked population and is eager to use digital financial technology to boost financial inclusion. But not all fintechs are created equal. And not all fintechs have such noble intentions.
India fintechs have begun lending money to people who can't get bank loans because they lack a credit history, the one they have does not instill confidence in lenders, or the banks just don't want to make personal loans. Of course, the lenders want to be sure they get their money back. And just as they can use borrower data to make a decision about whether to approve an applicant's loan, they can use that same data for debt collection. Here's the rub: That practice is often illegal in India, as well as in the United States, where some of startups' key investors are located.
Why are fintechs eyeing the Indian remittances market?
India is the world's largest recipient of remittances. In 2018, Indians overseas sent home a record US$79 billion, according to the World Bank. The majority of remittances to India originate in the wealthy Gulf states of the Middle East, where there are many Indian workers. The No. 2 source of remittances to the subcontinent is the United States, followed by the United Kingdom, Malaysia, Canada, Hong Kong, and Australia.
Given the size of India's remittances market, there is a significant opportunity for fintechs, especially as the typical cost of sending remittances remains high. Fintechs who could offer remittances on the blockchain for a fraction of the fee of banks or other transfer services could tap a potentially lucrative market.
Indian fintech giant Paytm is reportedly in talks to acquire the Mumbai-based insurtech firm Coverfox for $100-$120 million in cash. If the acquisition is a success, it will be the largest by Paytm and mark the firm's arrival to India's insurtech segment with a bang, posing a direct challenge to market leader Policybazaar.
Contemplating a fiat cryptocurrency for India
The Indian central bank, the Reserve Bank of India (RBI) is considering the possibility of introducing a fiat cryptocurrency in the country.
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As the Indian economy grows rapidly, there is an opportunity to bring ever larger number of Indians into the banking mainstream through both public and private banks.
The effect of Demonetization in India and the role for Anti-Money Laundering Systems
The recent move by the Indian Government to ban the old Rupees 500 and 1000 notes has created turbulence far beyond what was imagined and planned for. The intent was laudable, as the Indian Prime Minister Narendra Modi sought to curb growing corruption in the economy. However, the lack of preparation on part of the central bank, the Reserve Bank of India (RBI), and the commercial banks has meant that the citizens have been left in the lurch.
On Oct 6th, the Reserve Bank of India (RBI) released the operating guidelines for Payment Banks (PBs) and Small Finance Banks (SFBs).
India's Central Bank welcomes its new chief
On September 4th, Urjit Patel officially became the new central bank chief in India. He succeeded Raghuram Rajan, who was famous for largely stabilising the economy during his three year term. Under Patel's leadership, the Reserve Bank of India (RBI) is expected to continue the current policy regime.