A New Era of Fintech Regulation in India: A Change on the Horizon?

The atmosphere was electric at Jio World Convention Centre in Mumbai on the night of September 20, 2022. Crowds buzzed at the third installment of the Global Fintech Fest, a grand meeting point for many financial tech companies, traditional banks, non-bank financial institutions, and policy overseers.

High anticipation hit the audience as Shaktikanta Das, the former governor of the Reserve Bank of India (RBI), stepped up for his keynote. A few weeks earlier, the governing authority had clamped down on digital lenders with stricter regulations, inciting disgruntled reactions over perceived inflated interest rates, overly assertive debt recovery strategies, as well as allegations of scam and violations of data privacy.

Das declared that the future of fintech was going to be heavily populated with players. However, he emphasized the need for everyone to adhere to regulations for the sake of the safety of each participant in the sector and secured operation of the overall ecosystem.

Much to their displeasure, contemporary lending firms ended the day without the relaxation in rules they might have desired. This pattern of strict regulatory enforcement would continue unabated in the periods that followed. Persistently throughout his term, Das maintained a hard line on corporates that transgressed the regulations.

Two years later, in 2024, the RBI strengthened the regulatory framework around peer-to-peer lending and imposed penalties on a handful of platforms that had gone against the rules. In the same year, restrictions were increased for Paytm Payments Bank due to their recurring non-compliance issues.

Meanwhile, Madhabi Puri Buch, the then chairperson of India’s markets regulator – the Securities and Exchange Board of India (Sebi), called for more transparency from foreign portfolio investors. At the same time, she spurred mutual funds towards adopting more ‘self-regulatory structures’, essentially proposing for fund houses to shoulder more compliance responsibility rather than leaning heavily on Sebi enforcement.

The mutual fund sector felt like the regulatory body was trying to withdraw from responsibility while keeping its punitive control. Predictably, this sparked swift and prolonged opposition from industry groups. They argued that such actions would suppress innovation and escalate operational costs without commensurate benefits. Nevertheless, Sebi stood firm on its stance.

Industry observers have noted a shift in the regulatory climate as of late. With replenished leadership at both RBI and Sebi, in the form of Sanjay Malhotra and Tuhin Kanta Pandey respectively, more nuanced listening to the concerns of the industry, and attempts to implement more measured regulations are evident.

The incoming leaders, both officers of the Indian Administrative Service (IAS), seem intent on introducing more balanced regulatory schemes that mitigate prior grievances of the companies under their jurisdictions. This indicates a possible easing into regulations that were previously seen as rigid.

RBI and Sebi’s regulatory landscapes are further complicated by the geopolitical pressures instigated by US President Donald Trump’s manipulation of tariffs. For RBI, this external risk adds an extra layer of complexity to the rate-setting decisions of the monetary policy committee.

Additionally, the flexible inflation targeting scheme that requires the committee to control inflation within the band of 2-6% is due for review. Last updated in 2021 on a five-year cycle, the government decided to stick to the initial inflation target at its last revision.

Various economists advocate for core inflation, excluding fluctuations in food or fuel prices, to be the standard for the RBI to target. However, the fact that food prices account for a significant 46% of the consumer price index (CPI) inflation indicates that removing food from the equation could distort the data.

For Sebi, the task at hand is to retain market stability and safeguard investor interests during a period when an increasing number of small investors are becoming interested in derivatives. Statistics from Sebi from July depict that 91% of individual participants in equity derivatives suffered net losses within the six months ending May 2025.

Indications suggest that under the new leadership of Sanjay Malhotra at the RBI and Tuhin Kanta Pandey at Sebi, there is a potential shift towards more considerate regulation that could benefit the fintech industry.

However, the changing external dynamics and ongoing compliance issues in the industry present significant hurdles to any effort to balance innovation, stability and compliance in India’s fintech sector.