Here’s how RBI’s Monetary Policy could affect FinTechs in India

By Puja Sharma

Following RBI Governor’s MPC speech, FinTech leaders have shared their perspectives on the implications of the proposals announced–

Since the MPC’s meeting in June 2022, the global economic and financial environment has deteriorated with the combined impact of monetary policy tightening across the world and the persisting war in Europe heightening the risks of a recession. Gripped by risk aversion, global financial markets have experienced surges of volatility and large sell-offs. The US dollar index soared to a two-decade high in July. Both advanced economies (AEs) and emerging market economies (EMEs) witnessed the weakening of their currencies against the US dollar. EMEs are experiencing capital outflows and reserve losses which are exacerbating risks to their growth and financial stability.

The RBI’s governor Shaktikanta Das, mentioned the substantial increase of the liquidity in the market, The loan-demand growth and current policy rate hike are raising deposit rates, leading to banks raising more funds for lending. Das announced that the FY23 GDP growth forecast has been retained at 7.2%.

Shrihari Gokhale,  COO, Lentra said, “The RBI hiked the repo rate by 50 basis points (bps) to 5.40%. This is in line with the global trend of tightening the monetary policy to cool off inflation. It is also in line with market expectations. Consumer inflation is still above the tolerance zone even after some improvement in critical components such as crude prices. Keeping a check on the liquidity and expenditure is RBI’s priority. This will certainly cause a rate hike in deposits and loans. The increase in the cost of funds will most impact the feasibility of large and long gestation projects. MSMEs require assurance of funds in addition to the cost of funds. We believe MSMEs will be able to handle this surge in the repo rate as long as it stays in this range over the medium term.

A recently published report by J.P. Morgan reveals that macroeconomic factors and monetary policy are going to increase risks to working capital availability of enterprises. It is therefore critical for enterprises to build an in-depth understanding of their cash conversion cycles, optimise their financial and supply chain operations, and control expenditures.

“Today’s announcement by Governor Shaktikanta Das confirms two priorities for the RBI. First, is reigning in inflation, as signified by the decision to raise the repo rate by 50 bps (0.50%). While this is a critical step in the right direction, these hikes will further add to the operational expenditure and working capital availability of enterprises. It is thus critical for businesses to now prioritize and make efficient their working capital management. Working capital is the critical cash that sustains the day-to-day operations of businesses.” said, Rupesh Nambiar, CFO, Global PayEX.

Second, is the RBI’s commitment to standardising and further optimising the digital payments ecosystem in India. The RBI has proposed enabling Bharat Bill Payment System (BBPS) to accept cross-border inward bill payments.

“This will enable NRIs to make payments on behalf of family members in India, on BBPS’s interoperable and integrated platform. With over 20,000 users and approximately 8 crore transactions processed monthly, BBPS has emerged as an important one-stop platform for standardized and recurring digital payments. This proposal will further accelerate the digital infrastructure needed to facilitate cross-border payments between Indians and the world.” Nambiar added.