Fintech Start-Up Slice To Merge With North East Small Finance Bank, Gets RBI Approval

According to reports, in the past, RBI officials have expressed their reservations about fintech companies obtaining licenses indirectly by acquiring regulated entities like banks and NBFCs

Bengaluru-based Slice offers credit card and issued over 400,000 cards in a single month at its peak.  ( Image Source :Getty )

Fintech unicorn Slice and North East Small Finance Bank (NESFB) on Wednesday annouced merge plans following approval from the Reserve Bank of India (RBI), a first of its kind deal where a fintech startup is merging with a small finance bank, reported TechCrunch. Bengaluru-based Slice offers credit card and issued over 400,000 cards in a single month at its peak. 

In a statement, the start-up said that the merger with the Guwahati-headquartered small finance bank (SFB) will allow the combined entity to better serve their shared mission and reach more consumers who currently lack access to basic banking services, the report said. 

According to reports, in the past, RBI officials have expressed their reservations about fintech companies obtaining licenses indirectly by acquiring regulated entities like banks and NBFCs. For instance, RBI rejected an application from Flipkart co-founder Sachin Bansal's Navi, which was later sold it's microfinancing unit to Svatantra Microfin in August for about $178.5 million.

In 2021, they issued a small finance bank license to a consortium of Centrum Financial Services and fintech company BharatPe. However, this license was primarily aimed at addressing a capital shortfall issue and helping resolve problems at a troubled small lender called PMC.

Nevertheless, the regulator's approval for this merger suggests that the central bank has significant confidence in the fintech's shareholders. As per the report, Slice has held an NBFC license for about five years.

According to a Moneycontrol report, Slice had a valuation of approximately Rs 12,000 crore or $1.5 billion in its most latest fundraising round last year. Meanwhile, NESFB is estimated to be valued at about Rs 400 crore. Although the specifics of the merged entity's shareholding are undisclosed, it suggests that Slice shareholders are likely to hold a majority stake in the combined company. In March 2023, Slice disclosed its acquisition of a 5 per cent stake in NESFB, valued at $3.4 million.

NESFB operates 208 branches across seven North East states and West Bengal, primarily serving customers from rural areas and the bottom of the pyramid segment. Slice said that this merger will help achieve the shared objective of infusing technology into grassroots financial inclusion efforts nationwide. It's important to note that this merger is still pending requisite shareholder consent and other regulatory approvals.

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“We’re grateful to the RBI for entrusting us with this immense responsibility. This approach allows us to serve a wider audience, including those often overlooked. We will further strengthen our risk underwriting through the use of technology and data. We see this as an opportunity to build a highly inclusive and responsible bank, underpinned by robust risk management and strong governance,” said Rajan Bajaj, founder and CEO, Slice, as per the report. 

"This alliance with Slice marks an exciting expansion of our reach and enhancement of our services. Dedicated to supporting the underserved, our collaboration is bolstered by slice’s innovative technology and a keen emphasis on customer experience,” said Rupali Kalita, managing director and CEO of NESFB.

“There will be an integration process with both entities working diligently to ensure a smooth transition for all customers,” the companies said in a joint statement, as per report. 

Notably, earlier, Slice used to provide prepaid cards with relatively modest credit limits to its younger customers. Over time, as customers demonstrated their ability to repay, Slice would gradually increase these credit limits. However, the RBI intervened and halted Slice from offering a credit line on prepaid cards last year. This regulatory directive disrupted the operations of several startups, including Uni, Jupiter, and Fi Neobank, which had been offering similar card products.

The central bank's rationale behind this decision is that the regulatory framework is determined by the product's functionality. If a product closely resembles a credit card, it must adhere to all credit card regulations. In India, only banks and a few bank-owned entities have the authority to issue credit cards.