RBI rejects Sachin Bansal-backed Chaitanya India Fin Credit's application for universal bank

The Reserve Bank of India on Tuesday announced that it rejected Chaitanya India Fin Credit Private Limited’s application to obtain a Universal Bank license. The rejection is a setback for the Sachin Bansal-backed firm’s bid to set up a full-service banking platform. The Navi group, under which CIFCPL comes, was gearing up for an IPO, as Entrackr had exclusively reported in February. The RBI’s rejection may imperil that plan.

We have reached out to the firm for comment. Under RBI rules, an entity whose application for on tap licensing has been rejected, cannot re-apply for three years, according to a 2016 PwC analysis of the rules.

The RBI did not explain its rejection in detail in its press note, stating only that CIFCPL was “not found suitable under Guidelines for ‘on tap’ Licensing of Universal Banks”. REPCO Bank and Unimoni parent UAE Exchange and Financial Services Private Limited were also rejected.

A Universal Banking license allows financial institutions that are not full-fledged banks (such as lending firms like Chaitanya) to transition into one. Financial institutions “have an option to transform into a bank provided the prudential norms as applicable to banks are fully satisfied,” the RBI explained in 2001, norms it appears that Chaitanya fell short of.

Privacy has often come up as a key concern for the RBI in licensing decisions and in its overall regulation of the banking industry. Navi did not help its case on that front when it emerged last year that some of the company’s sales messages on SMS were going out to people with their full PAN number included in the message. It was unclear where Navi obtained these people’s PAN data, or how it determined that they were eligible for loans.

The Morning Context reported that the RBI flagged this as a concern while screening Chaitanya’s Universal Bank license application, along with “lax internal governance” and the fact that Navi owns a general insurance company.

In its Draft Red Herring Prospectus to the Securities and Exchange Board of India, Navi warned potential investors that it was not guaranteed that their universal banking license would be approved, in a mandatory section on risks to its business.

In FY21, Navi turned profitable, with Rs 779 crore in revenues. The company aims to have Rs 15,000 crore in its loan book by the end of 2023.