Peak XV, Temasek-backed Fi is the latest fintech to get NBFC licence

Peak XV and Temasek-backed fintech platform Fi has received the non-banking financial company (NBFC) licence from the Reserve Bank of India, which will allow the startup to lend from its books.

“Team, April has brought us fantastic news! We have received the approval for our NBFC license! This is a significant milestone in the direction of formalising our business,” Fi co-founder and CEO Sujith Narayan said in an internal memo to employees on April 29. Moneycontrol reviewed a copy of the memo.

“This gives us access to several direct integrations from bureaus to risk databases that help our product in more ways than one. We can now experiment with lending without external dependencies. This also sets the ground for the next set of licenses that we intend to seek this year. It’s usually the first license that takes the most time and effort!”

NBFCs and banks have access to consumers’ credit history and credit scores from the bureaus directly and can make lending decisions based on their creditworthiness. They also tend to charge higher interest rates to consumers with lower credit scores.

When contacted by Moneycontrol, Fi declined to comment.

Prized licence

Over the past few years, fintech startups have been looking to get an NBFC licence to ease their way into lending as the RBI has tightened rules governing online credit disbursal.

Most startups get into lending arrangements with other NBFCs and banks and have to part with a substantial share of profits. These startups act as a marketing and customer acquisition platform for financial institutions.

While the likes of Jupiter, Groww and Cred have already got NBFC licences, OneCard and WintWealth are among those still waiting their turn.

Moneycontrol reported in September that Fi was expecting an approval for NBFC licence in the next six months.

Financial institutions often ask for first loss default guarantee (FLDG) agreements, which means that the startups bear a substantial part of the losses when customers default.

With an NBFC licence, the startups have a chance to generate sizeable profits from lending, which could cover non-performing assets or defaults.

The net interest margin, the difference between the interest earned and paid, could be as high as 6-8 percent for the startups if they start lending from their books as compared to 3-4 percent when working with financial partners. This margin could well be the difference between making profits for the startups.

The number of NBFCs surrendering their licences rose to a four-year high in July 2023.

Experts attributed this to the tough business environment and increase in entry-level minimum net-owned fund requirement.

Last valued at $520 million in a funding round in July 2022, Fi registered revenues of Rs 1.27 crore in FY21 and Rs 25.6 crore in FY22, according to data from PrivateCircle Research. Its losses were Rs 50 crore in FY21 and Rs 245 crore in FY22.

Founded by Sujith Narayanan and Sumit Gwalani in late 2019, Fi offers a zero-balance savings account, ways to monitor expenditure and segregate it and create “jars” for savings.

It directly competes with Jupiter, another neobank founded by former Citrus Pay founder Jitendra Gupta. Both startups count Peak XV as a common investor.