Hello everyone,

Welcome to the 80th edition of The Pattern, a weekly newsletter where I bring you the latest from the worlds of finance, economy and technology. Without further ado, let’s dive right in!

Do we have a new category-defining model?

 FinTech behemoth Slice has merged with North East Small Finance Bank (NESFB), with the Reserve Bank of India (RBI) having given the union its blessing in the form of a no-objection certificate (NOC). The two entities had been in talks about the merger for 15 months prior to the announcement this week.

 What has made this development interesting is that it is only the second such partnership to have taken place in the Indian FinTech sector since BharatPe invested in Unity Small Finance Bank in 2021. And there’s lots to unpack here.

• FinTech head, bank body

Slice is a well-known FinTech operating in the payments space. It also already has an NBFC licence, which means that it can lend on its own books. In fact, shortly after the RBI barred prepaid cards from being loaded with credit lines last year, the FinTech quickly secured a prepaid payment instrument (PPI) licence itself. Now, as it merges with a small finance bank, the company seems to be driving the message that it will build, merge, and acquire –  if need be – to cover all its bases. And in the process, push the barriers of categorisation.

 In a time when bank-FinTech partnerships have evolved from something that was encouraged to a must-have, this chimeric blend of licences and business models operating at varying degrees of innovation, market penetration, and tech adoption leaves a pertinent genealogical question to be asked – will the partnership manage to take the best of each model and turn itself into a financial super-entity, or will falter to the task, trapped in the twilight zone between the old world and the new?

 To me, the rare nature of the opportunity has set the partnership up for success, making it a monopolistic player uniquely placed to glean the advantages of being an early mover. It also speaks of the vitality of the FinTech model to adapt in the face of changing regulation, evolving market needs, and a mercurial funding environment.

• A definitive potluck of financial services

The merger announcement stated that the partnership would “expand tech-enabled financial accessibility”. The FinTech would bring in its technological capabilities and robust capital funding. The lender would enrich the partnership with its physical presence, and a much-coveted banking licence. However, Slice’s resonant brand image would mean that the partnership might stick to its branding – giving a vital facelift to the small finance bank as well.

• Two birds with a stone?

The RBI’s approval of the merger is being read as its approval also of the FinTech sector – regulating which has been nothing short of riding a tiger. It has, over the years, rolled out pieces of regulation by proxy (often leveraging REs’ relationships with FinTechs). But this merger is more than that, it is a shrewd manoeuvre through which it brought an unregulated giant into its own ambit, while also throwing a much-needed lifeline to a struggling lender.

 NESFB has been struggling with rising non-performing assets (NPAs); it has violated regulatory norms requiring that promoter shareholding be reduced to 40% within five years; and is riddled with governance challenges. It has also been facing asset quality deterioration arising from last year’s Assam floods and has delayed its fundraising plans.

 Slice’s unimpeachable capability, and backing by a cohort of ace investors, has made it a perfect candidate to rescue the struggling lender without the regulator wasting time and resources itself. 

Surge in personal loans

Getting a personal loan has become easier than ever before. While that may be good news for consumers, it could raise alarm for banks. RBI governor Shaktikanta Das has said that the regulator is watching out for “signs of incipient stress” attributed to growth in unsecured lending, and has urged lenders to beef up their surveillance mechanisms.

The RBI’s monetary policy report shows that personal loans now account for 32.1% of all sectoral credit. This has been driven by increasing  credit card spending  in tier 2 and 3 cities, with most spend on travel, entertainment, and utility. Co-branding of credit cards with e-commerce platforms have played a huge role in the increase. 

 The growth in personal loans has outpaced that of credit to the industry, agriculture, and service sectors, which are regarded as “productive” sectors whose credit utilisation has positive effects on the banking system and the economy as a whole.

 Between the digits

  68% : Rise in FinTech funding in July-September over April-June

3 billion : Planting this number of trees might make Indian Railways carbon-neutral by 2030

$2.6 billion : What economists predict the Cricket World Cup will add to the Indian economy

Reading list

  Yes, India needs a million investment advisers – properly regulated ones

With algorithms reshaping society, Digital India Bill must create capacity for smart intervention

MPC may go for a hawkish pause

Women are an overlooked resource in the battle to tame inflation

 Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to never miss any updates.  

Cheers,

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.