The merger of credit and payments startup slice and North East Small Finance Bank (NESFB) has set the mood euphoric in the fintech world as many companies see this deal as a shortcut to foray into the banking sector. While fintech chief executives see this deal as an indication of the Reserve Bank of India (RBI) going soft on the fintech firms, former senior officials involved in banking regulations say the central bank is unlikely to give any special concessions to fintech firms looking to become a bank by merging with existing banks.
“When any entity is acquiring a significant stake in a bank then there are a set of regulations prescribed by the RBI and they are the same for every entity, whether it is a fintech or a non-banking financial company. They all have to pass the fit and proper criteria of the RBI,” R Gandhi, former Deputy Governor, Reserve Bank of India (RBI) told FE.
He underscored the role played by fintech as they leverage technology to expand the penetration of financial services in far-flung areas.
“The central bank recognises the crucial role of fintech companies in financial inclusion. The RBI has said several times that fintech companies have to cooperate and coexist with banks,” said Gandhi. “Earlier when fintech companies started venturing into financial services, there were talks that they might make traditional banks redundant, but now it has become clear that they should collaborate with banks,” he added.
Bengaluru- based slice, on Wednesday, created ripples in the fintech world by announcing that it had received banking regulator’s approval for its merger with Guwahati-based NESFB, a rare case a fintech entering into the banking sector. This deal has buoyed the spirits of fintech firms as they see it as quick entry into the world of banking. However, this route is going to be a tightrope walk for fintechs.
“RBI looks at every merger deal in the banking sector purely on basis of merit so there is no question of RBI going soft on fintechs or any other entities. There are clear sets of rules and all the entities are subject to same level of scrutiny,” a former deputy governor of RBI told FE.
RBI has been keeping a close watch on the merger process for the past one and a half year and has given its nod after doing thorough auditing.
NESFB was also not performing well in the past couple of years. The bank’s net interest income declined to Rs156 crore in 2022-23 from Rs 192 crore in the previous fiscal. Similarly, its gross non-performing assets rose to 18.20 percent in 2022-23 from 10.89 percent in the previous fiscal, putting pressure on its profitablity. Many believe that the deteriorating financial health could be one of the reasons for RBI’s green signal to this deal. However, experts say this is not how the central bank looks at the merger.
“RBI will not approve a merger just because a bank is not performing well. The central bank has other sets of measures for such cases,” said the former deputy governor.
