Top banks ask fintech partners to limit small ticket loans

This development comes in the aftermath of the central bank's recent tightening of regulations on the rapidly expanding small loan sector.

Paytm has declared its intention to slow down the provision of loans below 50,000 rupees (approximately $600), making it the first entity to make such an announcement since the Reserve Bank of India (RBI) instructed banks last month to increase their capital reserves.

This directive aimed to address concerns regarding the heightened risk resulting from the rising demand for personal loans and lending through non-banking financial companies (NBFCs).

"There is a clear signal from the RBI to pull back, so we will," said a top banker at a mid-sized private sector bank that lends to about a dozen fintechs, according to the Reuters report.

"We have signalled to our fintech partners that we don't want to be present in the less-than-50,000-rupees loan category."

Despite the pullback in small personal loans, there is no intention to sever ties with fintech partners, the report said.

A source from a private sector bank told Reuters, "While we don't plan to completely reduce funding to fintech partners, we have expressed discomfort with their emphasis on small-ticket personal loans."

The impact of this pullback will affect the availability of small-ticket personal loans, not only for Paytm but also for several smaller fintechs with tie-ups with banks and non-bank finance companies (NBFCs).