The Reserve Bank of India (RBI) has dealt a setback to Kunal Shah’s Cred by declining its application to increase its ownership in the non-banking finance company (NBFC), Newtap Finance. Currently, the RBI holds a 23.6% stake in Newtap, while the remaining ownership rests with Shah. This decision, reportedly centered around concerns related to corporate governance and management, has been reported by Livemint.
Newtap’s Journey and Evolution
Founded in 2021 by Kunal Shah, Newtap Finance initially acquired Parfait Finance & Investment, an RBI-registered NBFC, with the intention to provide lending products exclusively to Cred users. While Newtap initially centered its focus on Cred’s user base, it has now set its sights on diversifying its lending offerings to encompass other businesses. This strategic expansion plan calls for independent funding in both debt and equity, which consequently requires a restructure of Newtap’s shareholding. Presently, Shah holds a majority stake in the company.
According to sources quoted in the Livemint report, “Cred applied to take control of the NBFC. But last month, the application got rejected on the grounds of ‘corporate governance and management issues’.” However, there seems to be conflicting information about whether corporate governance or management concerns were explicitly mentioned in the RBI’s rejection letter. In light of this situation, Cred is engaging in discussions with the regulatory body to ascertain the precise reasons for the denial.
Cred’s Efforts to Secure Funding for Newtap
Cred has been actively exploring avenues to raise around $50-60 million for Newtap from a mix of new and existing investors, including prominent names like Sequoia Capital and Singapore’s sovereign fund GIC. This fundraising initiative is geared towards maintaining a balanced equity-to-debt ratio while catering to a diverse customer base. Currently, Newtap plays a crucial role in empowering Cred’s “buy now-pay later” product (Cred Flash) and personal loans (Cred Cash), collaborating with various lending partners to ensure efficient operations.
Positive Financial Growth and Commitment to Growth
Recent Registrar of Companies (RoC) filings reveal Newtap’s promising financial performance. In the fiscal year 2023, the company recorded a profit of Rs 5.6 crore, with revenue from operations reaching Rs 15.5 crore, marking a substantial increase from the previous year’s Rs 6 lakh. The company’s “loans and advances” amounted to Rs 273 crore. The commitment of Kunal Shah and Cred is also evident through their collective investment of around Rs 79 crore in Newtap’s equity capital, highlighting their dedication to fostering its growth.
The RBI’s decision to reject Cred’s bid to raise stake in NBFC Newtap underscores the critical role of corporate governance and management transparency in the financial sector. As the situation unfolds, industry observers will be keenly watching how Cred navigates these challenges and continues to drive growth in Newtap Finance.
