What does the new government have in store for fintechs?

As India prepares to welcome the new government, the country’s start-up ecosystem is awaiting announcements on the fate of the existing policies and realisation of the announcements made during the Interim Budget 2024. 

Some of the key sectors that caught attention of the interim government were online gaming, fintech, crypto currency, agritech, and drones, among others. Several ministers, members of Parliament, and heads of several regulatory bodies raised concerns over the need for stricter regulatory measures to keep a check on the mushrooming start-ups in these sectors. 

However, of all, fintech start-ups, with a specific focus on digital lending caught attention of the finance ministry and other market regulators significantly. Addressing the Parliament, outgoing finance minister Nirmala Sitharaman was seen speaking about bringing the digital lending apps under regulatory lens.

Some of the key developments in the fintech sector over the last few years have been:

• RBI’s crack down on Paytm
• 30% market cap imposed by NPCI to check duopoly of Google Pay and PhonePe in the UPI payments sector
• Fintech apps surpassing banks in the UPI payments race, per NPCI data
• Listing of companies in the GIFT City-based India International Exchange

 

In a bid to boost the ecosystem, Sitharaman, along with other ministers and heads of regulatory bodies, interacted with 10,244 fintech entities of India in February this year.

During the meeting, it was noted that Aadhar, UPI, API Setu, among others acted as enablers for start-ups and fintechs and simplified incorporation of companies, recognition of P2P lenders as non-banking financial companies (NBFCs), regulatory sandbox, fintech repository, SRO Framework for fintech, etc have facilitated the start-up eco-system in India.

Business Today spoke with Ramesh Punugu, Global Head Buy Side Research, Acuity Knowledge Partners, to understand what’s next for the sector as the new government prepares to form the cabinet.

“As per global fintech adoption index 2023, India’s fintech adoption rate stands at 87% compared to the global average of 64%, demonstrating how India has outgrown the global average in terms of digital adoption on the back of ongoing financial inclusion efforts such as Pradhan Mantri Jan Dhan Yojana.”

He further added that India has witnessed exponential growth in digital payments systems driven by demonetisation and active government promotion. UPI transactions increased from 9.4 billion in May 2023 to 14.0 billion in May 2024, reflecting 49% year-on-year growth. The average daily volume of transactions increased from 303.7 million to 452.8 million during the same period. The number of banks linked with UPI has also increased from 414 in April 2023 to 581 in April 2024 reflecting addition of 167 banks in one year.

Commenting on structure of the overall ecosystem, he further said that the current government’s continuity is expected to further bolster the start-up and fintech sectors in India. Continued government support through initiatives, enhanced funding opportunities, and a favourable regulatory environment are likely to drive growth and innovation.