RBI ordered credit lines on Fintech

RBI ordered credit lines on Fintech

Team Ambitiousbaba are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today’s Current Affairs topic is “RBI ordered credit lines on Fintech

The Reserve Bank of India has recently released a regulation on fintech which were behaving like banks.  The newly released regulation forbids non-banking wallets and pre-paid cards from loading credit lines onto these products. This might have been impacted on fintech companies and benefitted banks.

What is Fintech?

Fintech term is derived from the word ‘financial technology’, which helps companies, business owners, and consumers to manage their financial operations, processes, and lives better.

It uses specialized software and algorithms that are computed on computers and smart phones.

In the regulation report:

The report directed that the regulation will grant banks to speed card acquisition while reducing competition.

The RBI forbade non-banking wallets and prepaid cards from loading their credit lines on June 20. The regulator, in a one-page circular addressing non-banking prepaid payment instruments (PPIs) and directed them to end such practices immediately.

RBI has also stated strictly that any non-compliance in this regard may draw penal action under provisions consisted in the Payment and Settlement Systems Act, 2007.

The RBI’s directive has made widespread confusion in this segment of the payments industry on the other hand RBI’s order occurred after concern of the new-age companies behavior of lender’s role without taking sufficient safeguards.

Over the last few months, the RBI has been checking on fintech companies and pressing for stronger regulations. This is a clear message that fintech firms will be more and more regulated.

The RBI’s circular follows widespread discussions between the banking regulator and industry stakeholders as it looks for understanding the business models of lending startups, admitting credit-card based fintech firms, while directing to release digital-lending norms by July, multiple sources aware of the talks.

Risk on Fintech sector:

As RBI tightens the regulations on fintech companies the risks are growing for the fintech sector. With regulatory arbitrage now being punched slowly, it is expected a slowdown in growth and profitability prospects for the fintech sector in India.

 

Questions & Answer:

Q1. Which entity has released the regulation on fintech companies?

Ans. Reserve Bank of India

Q2. Reserve Bank of India prohibits Fintech Company for what?

Ans. From loading credit lines on to its products

Q3. To regulate payment companies and fintech companies which regulation or law has been implemented in India?

Ans. Payment and Settlement Systems Act, 2007

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