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RBI BLOCKS THE NBFC PLANS FOR STARTUPS

With the topical geopolitical elaborations that have impelled tenser scrutiny of

Chinese investments coming into local Indian startups via tax havens like

Mauritius, the Reserve Bank of India (RBI) has reimbursed the applications of

numerous Indian startups who were applying for the Non-Banking Financial

Company (NBFC) license. Some of these Indian startups include Sequoia-

backed BharatPe, Google Capital-backed CarDekho, and the Sequoia and

Matrix Partners- backed digital banking startup Jupiter.

The money coming from the Chinese venture capital (VC) and private equity

(PE) funds registered in Mauritius, which is on the Financial Action Task Force

(FATF) grey list, is being seen as capital from a jurisdiction with fragile norms

to offset money laundering. This has resulted in the RBI returning three

applications for NBFC licenses.


Most of these startups who applied for a license and have raised VC funding

will have to wait longer, at least for the rest of the year, because of the current

situation, before there is a change in the RBI’s stance. This would cause an

impediment for the monetizing plans of the lending operations of startups

through their own NBFCs as that will have a lower cost of capital, than

partnering with others.

The NBFC sector has been reeling since the payment evasion of Infrastructure

Leasing and Financial Services (IL&FS). Since the virus outbreak, the

government and the RBI have been trying to alleviate the liquidity shortage for

this sector.

India has been making manifold attempts at embargoing Chinese influence in

the Indian economy since the Ladakh border conflict that started in May. For

this purpose, the government has made mentioning the ‘country of origin’ for

products obligatory for e-commerce companies, to help the consumers make a

well-versed ruling, while the government unswervingly ups the wager against

Chinese imports and calls for an ‘Aatma Nirbhar Bharat’.

Friction against China ascended in April when India revised its Foreign Direct

Investment (FDI) policy to prevent unscrupulous takeover of Indian firms

reeling from the financial disruption caused by the Covid-19 pandemic and the

resultant lockdown. The government necessitated the prior sanctioning of the

syndicates in neighboring countries coveting to invest in Indian firms. As a

comeback to this amendment, China called the move a violation of international

trade principles. 

Envisaging a regression in Chinese investments into the Indian startup

economy, the Department for Promotion of Industry and Internal Trade

(DPIIT), was in talks with the Insurance Regulatory and Development

Authority of India (IRDAI) and Securities and Exchange Board of India (SEBI)

to deliberate whether state-run insurers and pension funds can be allowed to

invest in government-backed startup-focused fund-of-funds.


-- Pratha Sachdeva

(MCM DAV colege for women, Chandigarh)

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