Good morning. In today's edition we decode whether a fintech unicorn like Slice can disrupt the established banking order; Apple’s India push and Swiggy IPO launches next week. 

DECODE THE NEWS

Slice's Ambitious Leap From BNPL To Banking

What?

Fintech start-up Slice, backed by heavyweight venture capitalists like Tiger Global and Blume Ventures, has formally entered the commercial banking sector by merging with North East Small Finance Bank (NEFSB).

Founded in 2016, Slice initially operated as a Buy Now Pay Later product, primarily targeting young professionals and students. The company later rebranded and shifted focus to providing pre-approved credit. The merger provides a lifeline to Guwahati-based NESFB, which has been facing challenges, including weak asset quality. As of June 2023, the bank’s gross non-performing assets were 24.9%, up from 10.9% in March 2022.

Why?

The Slice and NESFB merger will unify both entities into a single, integrated banking institution. It will offer products and services including savings accounts, fixed deposits, and credit products. This allows Slice to become a digital bank, providing access to capital and enabling innovation in the payments space. By leveraging a banking licence, Slice can access diverse funding sources, including customer deposits, and offer a wider range of financial services.

Slice could have avoided getting into this highly regulated game if its target was just to expand its online lending play with the non-banking financial company licence that many other fintechs already have. But Slice went directly to commercial banking — and there is a reason why.

What Next?

Karthik Tabjul, a fintech founder building in stealth mode, told The Core that the merger gives Slice access to retail and corporate deposits and allows the firm to innovate and distribute banking products.  He highlighted that becoming a digital bank also allows the fintech to "innovate on (merchant) payments, deposits, cards, and other financial products (BBPS, Fastag, etc.)" This move could potentially increase Slice’s monetisation channels and opportunities beyond just consumer lending. Tabjul is a Chartered Accountant and worked with fintechs like Setu (acquired by PineLabs) and Mysa.

Piyush Kumar, a veteran banker who has worked with ICICI Banks, Axis Bank and others, cautioned that attracting customers to park their cash in savings accounts and fixed deposits would be challenging without offering attractive interest rates. He predicted that Slice might need to raise debt and other forms of financing to expand lending operations.

Slice will also face the challenge of balancing interest rates to attract good borrowers while ensuring profitability. Kumar noted that high interest rates could inadvertently attract bad borrowers, while good borrowers would seek lower interest rate offerings.  

Slice's entry into the banking sector marks a significant development in the Indian fintech landscape. However, the road ahead is not without challenges. With regulatory requirements and an evolving financial landscape, Slice will need to weigh risks carefully and raise capital strategically to demonstrate that fintech companies can thrive in this regulated environment. The success of Slice's banking venture could pave the way for other fintechs to follow suit, potentially reshaping the future of banking in India.

CO:RELATION

Can Dixon Technologies Keep Up? 

Dixon Technologies can be termed as a proxy for the ‘Make in India’ initiative. It makes electronic goods like televisions, mobile phones, refrigerators and wearable devices for global and local brands. The company is growing volume at a scorching pace at Rs 11,528 crore for the quarter ended September 2024. It is a jump of 133% over the year-ago period. The company’s operating profit more than doubled. Since the company does not own brands, it works on thin profit margins. As the volume of business grows, profits surge, too. With operating profit margins hovering between 3-4%, there is no option for Dixon to keep growing volume across product categories. 

The company believes the trend will continue as it gets the right product sales mix. Investors believe in the promise. That is reflected in the stock price trend. Over the past year, Dixon shares have nearly tripled in value. The expectation is sky high. The dream run could last if people continue to consume electronic devices for personal, home or office use.

CORE NUMBER

$6 billion

This is the total worth of the made-in-India iPhones sold by US tech giant Apple during the six months till September, a one-third increase in value compared to last year, Bloomberg reported sources as saying. This was a part of Apple’s strategy to reduce reliance on China. The $6 billion worth of sales keeps Apple on track to exceed exports worth $10 billion in 2024. 

FROM THE PERIPHERY

—🏦 We’ve known for a while that defaults on small personal loans are becoming a problem for banks. Now it seems that the problem is likely to grow for India’s banks in the coming year. The Economic Times reported that in the September quarter, five out of India’s eight private banks saw an increase in bad loans. This included  Kotak Mahindra Bank, IndusInd Bank, RBL Bank,  IDFC First Bank and HDFC Bank. This trend, the report said, was particularly true for unsecured loans. India’s fintech companies have faced this problem for a while too. The Core had earlier argued that easy accessibility had made it easier for youngsters to take loans and then not pay them back, and that some friction could help protect that banking system from such defaulters. 

—✈️ India is set to penalise General Electric (GE) for delaying F404 engine deliveries for the Tejas Light Combat Aircraft, a key component in Prime Minister Modi’s domestic fighter manufacturing plans. Originally due in 2023, deliveries now won’t start until March 2025, complicating defence goals amid regional tensions and stronger U.S.-India ties. Meanwhile, SpiceJet has settled Rs 310 crore in TDS debt dues up to Q2 FY 2025, including TDS from employees' salaries dating back to April 2020 and cleared Rs 600 crore in other obligations since September. With Rs 3,000 crore raised via oversubscribed QIP by 87 institutes, the airline plans to add 10 aircraft by November, signalling its revival.

—📱 Jio Payment Solutions Limited (JPSL), a wing of Jio Financial Services (JFS) lands the Reserve Bank of India’s (RBI) green light to act as an online payment aggregator starting October 28, 2024. The Business Standard reported that with rival Paytm under customer-onboarding restrictions, Jio has a prime opening to capture India’s booming digital finance market. Already supporting 1.5 million users via Jio Payments Bank, JFS is poised to expand, riding on the decline of cash. After handling 1.8 million UPI payments in April, Jio’s digital dominance is looking inevitable.

—🤑 Foodtech startup Swiggy has raised its primary issuance target for its initial public offering (IPO) to Rs 4,499 crore, up from Rs 3,750 crore, according to its updated prospectus filed with the Securities and Exchange Board of India. The food tech company aims to raise a total of Rs 11,300 crore through its IPO which also includes an offer-for-sale component as well. The IPO is scheduled to open from 6 to 8 November. Swiggy's largest investor, Prosus, plans to sell 109.1 million shares, while Tencent and other shareholders will also participate in the offering. The company has set a price band of Rs 371-390 per share, targeting a valuation of $11.3 billion to $11.5 billion.

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