PPI Norms: Fintech lenders may seek staggered transition to new wallet loading norm

The fintech lending industry is likely to request the Reserve Bank of India (RBI) to apply a one-year grandfathering clause to its new circular, barring the loading of wallets with credit lines, three people in the know told FE. The relaxation, if permitted, would allow lenders, who have prepaid card-based outstandings, to smoothly migrate their existing customers to a different mode of credit issuance.

The two industry associations, Digital Lenders Association of India (DLAI) and Fintech Association for Consumer Empowerment (Face), are known to be holding discussions with their respective members about the communications to be sent to the regulator. The industry is also likely to seek a clarification on whether the circular also bars bank-issued prepaid payment instruments (PPIs) from being loaded with credit lines, and what it means for debit card EMIs offered by banks.

According to sources, a group of executives representing PPI issuers met RBI officials on Tuesday to seek clarity on some points of the June 20 circular, barring loading of non-bank PPIs with credit lines. The RBI is understood to have indicated to the industry representatives that the circular applies to bank-issued PPIs as well. An email seeking the RBI’s response on this remained unanswered till the time of going to press.

One of the banks which has been growing its customer base in India using prepaid card-linked credit lines is yet to comply with the circular, sources said.

“The first thing we are looking for is clarity on why banks are allowed and other PPIs are not. The second is the need for grandfathering, because business already done cannot be stopped. We have customers that we have to migrate. So these are the two things we are trying to work on through the association,” said an executive with a fintech lender that had a part of its loan book linked to PPI-based disbursements.

Another industry executive said that the June 20 circular has come as a shock for companies like Uni, Slice and Jupiter. “From what I understand, the RBI will not budge from its stance and it will want these PPI-based products to be completely shut down. If that comes to be the result, the companies will ask for some more time from the regulator to make alternative arrangements,” the person said.

Even as the circular threatens their business models, these companies can fully pivot into traditional lending formats, opening new bank accounts for their customers, depositing money into them and then letting customers withdraw money from their debit cards and use it for whatever they like. “That approach, however, changes the entire value proposition, the risk profile completely changes and it’s another ball game altogether,” said one of the people quoted above.

Emails sent to DLAI, Face, Slice, Uni and Jupiter remained unanswered till the time of going to press.

Sankalp Mathur, co-founder, lending solutions provider Niro, pointed out that while the RBI’s rationale on the PPI loading is undoubtedly required from a regulatory point of view, the approach seems a bit excessive, given that one of the largest credit card issuers in the country is a non-banking financial company (NBFC). SBI Cards and Payments Services, the second-largest issuer of credit cards in India, is registered as an NBFC.

“The PPI cards driven by credit lines (NBFC or bank) have been useful to the end consumer and certainly enabled customer and use cases that were previously not covered under traditional methods. An ideal solution could have been tighter scrutiny, more regulatory reporting, increased capital adequacy, and guardrails for NBFCs enabling such products,” Mathur said.

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