The Reserve Bank of India (RBI) has declined an application from Cred, owned by Kunal Shah, to increase its stake in Newtap Finance, its non-banking finance firm. Currently, RBI holds a 23.6 per cent stake in Newtap Finance, with the remainder being owned by Shah.
Newtap Finance, founded by Shah in 2021, had previously acquired Parfait Finance & Investment, a registered NBFC under RBI, to provide lending products exclusively to Cred users.
However, the NBFC is now aiming to broaden its lending offerings to other businesses and secure independent funding, including both debt and equity.The plan to expand and raise funds necessitates a restructuring of Newtap Finance’s shareholding, wherein Shah currently holds a majority stake.
Cred’s application to gain control of the NBFC was rejected by the RBI last month, reportedly due to “corporate governance and management issues,” according to media reports.
However, Cred is engaging in discussions with the RBI to clarify the reasons for the rejection. Cred has been seeking to secure around USD 50-60 million for Newtap Finance from existing and new investors, including Sequoia Capital and Singapore’s sovereign fund GIC.
The purpose of this funding is to maintain an appropriate equity-to-debt ratio and serve a wider range of customers. Currently, Newtap Finance powers Cred’s buy-now-pay-later product (Cred Flash) and personal loans (Cred Cash), which includes collaboration with other lending partners.
According to filings with the Registrar of Companies (RoC), Newtap Finance reported a profit of Rs 5.6 crore in FY23 and generated Rs 15.5 crore in revenue from operations, a significant increase from Rs 6 lakh in the previous year. The company’s ‘loans and advances’ category stood at Rs 273 crore. Shah and Cred together have invested approximately Rs 79 crore in equity capital in Newtap Finance.
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