RBI Blocks CRED’s Attempt To Increase Stake In Newtap Finance

The Reserve Bank of India (RBI) has blocked the attempts of fintech unicorn Cred to increase its stake in Newtap Finance, a non-banking financial company (NBFC) founded by CRED founder Kunal Shah.

The fintech unicorn had attempted to increase its stake from 23.6% it currently holds in Newtap, leaving Shah with 76% of the NBFC. The CRED founder acquired Parfait Finance (now Newtap Finance) through Newtap Technologies (a separate entity set up by Shah) in 2021. Earlier, media reports had indicated the fintech unicorn’s intent to acquire a majority stake in the NBFC.

CRED is talking with the banking regulator to figure out the reason for its application being blocked, Mint reported citing two sources. The unicorn’s application got rejected due to certain ‘corporate governance’ and ‘management’ issues, the report said, citing sources.

The fintech unicorn was looking to increase its stake in Newtap ahead of an equity and debt round for Newtap Finance independently, which requires a change in shareholding. The NBFC is also looking to raise $50 Mn – $70 Mn.

Newtap Finance was looking for a CEO and will set up a fresh management team to operate as a full-service NBFC, per media reports from this June. It was also looking to establish itself as a standalone lending platform to work with lenders beyond CRED.

CRED’s interest in Newtap overlaps with its growing array of lending products. Right now, it partners with IDFC First Bank, Liquiloans and Credit Saison to offer small-ticket personal loans.

Per industry estimates, CRED has helped its lending partners create a loan book of over $1 Bn.

Given the potential of lending, the Kunal Shah-led fintech unicorn has also pulled in Newtap for providing loans. While Newtap has not received any ratings from rating agencies, it would be able to source debt funding from banks and larger NBFCs once it’s rated.

Per Newtap’s filings, it reported INR 15.53 Cr in revenue from operations for FY23, posting a profit of INR 5.63 Cr, per regulatory filings.

To bolster its lending vertical, CRED also acquired lending SaaS startup CreditVidya in November 2022, which operates Prefr, a digital lending platform that has developed underwriting and risk assessment models crucial for a lending product.

The fintech unicorn also picked up the Y Combinator-backed micro-savings platform Spenny, in line with its ambition to strengthen its fintech portfolio, especially in the lending segment.