Fintech’s capital constraints can impact credit profiles
- Weak e-lending standards could have masked a crisis of credit quality now set for exposure by tighter liquidity.
The rise of global interest rates after more than a decade of ultra-low rates is affecting the fortunes of startups and others in the neo-tech world. Fintech firms, being members of same club of cash-strapped innovators, are likely to face similar challenges. Unmixed blessings are rarer than unicorns. While fintech firms hold a huge potential to transform the financial services landscape, they also present new challenges and risks. A lot of successful fintech players are embedded in the lending operations of banks. However, in a scenario of constrained equity funding, quite a few of them will face survival issues. Banks should keep an eye on such risks of their fintech partners and have contingency plans to avert any operational disruption. Of late, Reserve Bank of India (RBI) Governor Shaktikanta Das and other central bankers have highlighted the systemic risk to banking posed by fintech operators in spite of their immense benefit. However, one specific risk requires greater regulatory and institutional focus. That is the risk of how fintech funding constraints could cause the credit profiles of their borrowers to deteriorate. While the scale of this risk appears limited right now, under certain adverse scenarios, this may trigger a consumer credit contagion that impacts the country’s banking system.
Login to enjoy exclusive benefits!
- Unlocked premium articles
- Personalized news
- Market Watchlist
- Insightful Newsletters & more