Introduction
July 2025 witnessed significant regulatory consolidation across India's financial ecosystem, with key regulators implementing comprehensive frameworks to strengthen oversight and streamline operations. The Securities and Exchange Board of India ("SEBI") led major initiatives by designating Bombay Stock Exchange ("BSE") as the investment adviser oversight authority, launching investor awareness campaigns, and expanding regulatory frameworks for various market intermediaries including research analysts and credit rating agencies.
The Reserve Bank of India ("RBI") advanced digital banking infrastructure through new authorisation directions and enhanced oversight of digital lending platforms, while the International Financial Services Centres Authority ("IFSCA") introduced frameworks for TechFin services. Technology and cybersecurity emerged as priority areas, with the Indian Computer Emergency Response Team ("CERT-In") releasing comprehensive audit guidelines and National Payments Corporation of India ("NPCI") expanding Unified Payments Interface ("UPI") capabilities to include internet of things ("IoT") payments and enhanced delegation frameworks.
The month also marked notable enforcement activity, with regulatory bodies initiating investigations into foreign direct investment ("FDI") compliance violations across major fintech platforms, while the sector faced cybersecurity challenges including security breaches. On the innovation front, major players embraced artificial intelligence ("AI") transformation strategies, and venture capital firms showed strong interest in emerging AI and defense technologies.
This edition of our fintech newsletter explores the key regulatory shifts, compliance developments, and market dynamics that defined the Indian fintech landscape throughout July 2025.
Recent Legal & Regulatory Developments
RBI issues new directions on pre-payment charges for loans
The RBI has issued the RBI (Pre-payment Charges on Loans) Directions, 2025 ("Directions") in furtherance of the public feedback received on the draft circular released by the RBI earlier on February 21, 2025. These Directions apply to all loans and advances sanctioned or renewed on or after January 1, 2026, and to all commercial banks (excluding payments banks), cooperative banks, NBFCs, and all India financial institutions.
The Directions require regulated entities ("REs") to take into consideration the following while deciding the pre-payment charges on floating rate loans and advances:
- REs must not levy pre-payment charges for loans granted for purposes other than business to individuals, with or without co-obligants.
- For business loans to individuals and MSEs, commercial banks (excluding small finance banks, regional rural banks and local area banks), tier 4 primary (urban) co-operative banks, non-banking financial company ("NBFC") – upper layer, and all India financial institutions should not levy any pre-payment charges. Small finance banks, regional rural banks, tier 3 primary (urban) co-operative banks, state cooperative banks, central cooperative banks and NBFC-middle layer should not levy pre-payment charges on loans with sanctioned amount / limit up to INR 50 (fifty) lakh (approximately USD 57,490).
- These restrictions apply irrespective of the source of funds used for pre-payment and without any minimum lock-in period.
- For dual / special rate loans (combination of fixed and floating), applicability depends on whether the loan is on floating rate at the time of pre-payment.
For loans not covered under the above restrictions, REs will apply pre-payment charges according to their approved policy. However, for term loans, REs must base charges on the amount being prepaid, while for cash credit/overdraft facilities, REs will levy charges on early closure based on an amount not exceeding the sanctioned limit. REs cannot apply pre-payment charges if borrowers intimate them of their intention not to renew cash credit / overdraft facilities before the stipulated period and the facility closes on the due date. REs cannot levy charges where pre-payment is effected at their own instance or retrospectively charge fees that it previously waived off.
The Directions also require disclosure of applicability of pre-payment charges clearly in the sanction letter and loan agreement. Additionally, for loans and advances where REs must provide key facts statement ("KFS") as specified in the RBI's circular dated April 15, 2024, on 'Key Facts Statement for Loans and Advances',1 REs must also mention these pre-payment charges in the KFS. REs cannot charge any pre-payment charges which have not been disclosed as required by an RE.
The Directions repeal multiple earlier circulars on pre-payment charges dating back to 2012, consolidating the regulatory framework under a single comprehensive directive.
IFSCA issues guidance on prior approval and intimation requirements for finance companies
IFSCA has issued comprehensive guidance outlining the process for Finance Companies ("FCs") and Finance Units ("FUs") to seek prior approval or provide intimation for specific changes. This circular facilitates uniformity and ease of doing business for REs operating in International Financial Services Centres ("IFSCs"), consolidating procedural requirements under the IFSCA (Finance Company) Regulations, 2021.
Key provisions under the guidance framework:
- Change in management/control: The IFSCA requires mandatory prior approval for FCs when there is a change in control of at least 20% (twenty percent) of total share capital or business decisions. FCs must submit formal request letters, board resolutions, new shareholding patterns up to Ultimate Beneficial Owner (UBO) level, detailed promoter information, and self-certified Information on Management (IoM) forms. FUs and entities undertaking non-core activities only need to provide intimation within 15 (fifteen) days. Changes below 20% (twenty percent) require intimation with basic documentation.
- Name changes and activity expansion: Entities must notify the IFSCA of name changes with appropriate documentation including board resolutions and updated incorporation certificates. Entities seeking to undertake additional regulated activities must submit revised business plans, projected financials, and key managerial personnel ("KMP") experience details. Cross-regulatory activities require entities to obtain a no-objection certificate followed by intimation upon successful registration.
- Voluntary surrender and regulatory waivers: The guidance establishes a structured process for voluntary surrender of registration, requiring entities to demonstrate cessation of all permitted activities, stakeholder notification, complaint resolution, and proper record retention arrangements. Entities can seek pre-facto waivers or exemptions from applicable regulations with formal requests and supporting documentation, covering areas such as aircraft lease framework, ship leasing framework, and employment requirements for global/regional corporate treasury centres.
- Procedural requirements: All entities must direct submissions to appropriate IFSCA divisions based on request type, with processing fees as per the IFSCA fee circular. The guidance includes detailed forms for information on management and voluntary surrender applications, ensuring comprehensive disclosure of individual backgrounds, financial standings, and regulatory compliance history.
SEBI seeks public comments on expanding business activities for Asset Management Companies
SEBI has issued a consultation paper on July 7, 2025, proposing significant relaxations to the regulatory framework governing permissible business activities for Asset Management Companies ("AMCs") under Regulation 24 of the SEBI (Mutual Funds) Regulations, 1996.2 The proposals enhance ease of doing business and expand the scope of activities that AMCs can undertake while ensuring investor protection.
Key proposals under the consultation framework:
- Relaxation of broad-based fund requirements: AMCs are currently restricted to managing only broad-based pooled funds (requiring at least 20 (twenty) investors with no single investor holding more than 25% (twenty-five percent) of the corpus). The proposal allows AMCs to manage non-broad-based funds as well, subject to stringent safeguards including fee caps, resource allocation requirements, segregation of key personnel, and restrictions on performance-linked fees to address potential conflicts of interest.
- Enhanced resource sharing provisions: SEBI proposes two options for AMCs providing portfolio management services ("PMS") - either through a separate subsidiary with distinct personnel or as a separate business unit within the AMC with segregated operations and direct board reporting Research personnel and resources may be shared between mutual fund operations and PMS units under both options.
- Expansion of ancillary activities: The proposal permits AMCs to undertake activities ancillary to fund management, specifically acting as Point of Presence (PoP) for pension funds under Pension Fund Regulatory and Development Authority ("PFRDA") framework and serving as global distributors for funds managed by the AMC (excluding mutual fund schemes). These activities must be conducted through subsidiaries with appropriate regulatory oversight.
- Streamlined framework for IFSC entities: The proposal creates a unified framework for AMCs providing services to entities operating through IFSCs, whether investing through Foreign Portfolio Investment (FPI), FDI, or Foreign Venture Capital Investor (FVCI) routes, with tailored restrictions based on the investment route.
SEBI includes comprehensive safeguards to prevent conflicts of interest, including mandatory segregation of operations, fee differential caps, enhanced monitoring by Unit Holder Protection Committees (UHPC), and restrictions on inter-business asset transfers. Public comments / feedback on the consultation paper were due on July 28, 2025.
NPCI introduces additional requirements for UPI Circle Full Delegation framework
NPCI has issued an addendum dated July 8, 2025, to its earlier circular on UPI Circle - Delegated Payments for secondary users, introducing enhanced requirements for the Full Delegation Framework. The addendum builds upon the original circular dated August 13, 2024,3 and aims to strengthen the identification and verification process when primary users authorise secondary users to initiate and complete UPI transactions within defined monthly spend limits.
Key additional requirements under the Full Delegation Framework:
- Enhanced user identification: Primary users must identify that secondary users belong to specific segments - family members (including child, parent, spouse, sibling, or other family members) or domestic / small business employees.
- Mandatory documentation sharing: Primary payer payment system providers ("PSPs") are required to share additional details including document type and document ID number of secondary users with both the secondary payer PSP and the issuer bank.
- Issuer bank verification: The issuer bank of the primary user must identify the secondary user during the delegation process using name, mobile number, and ID number from an Officially Valid Document as defined under the Master Direction Know Your Customer (KYC) Direction, 2016.4
- Explicit consent requirement: Secondary payer PSPs must obtain explicit consent from secondary users regarding the additional details (document type and document ID number) before accepting any Full Delegation request from primary users.
The circular directs all UPI member banks, PSPs, and third-party app providers to refer to the updated UPI Circle procedural guidelines and implement the necessary changes by August 31, 2025.
To view the full article, click here.
Footnotes
1. https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12663&Mode=0
4. https://www.rbi.org.in/commonman/English/scripts/notification.aspx?id=2607
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
