Chinese regulators approved Jack Ma’s Ant Group to begin operating a new consumer finance company, in the first concrete sign of an easing of tensions with Beijing after Ant agreed to a “rectification” deal in April.

The unit will become the centrepiece of Ant’s restructured lending business, which had grown so large that it issued about one-tenth of China’s non-mortgage consumer loans last year through its Alipay app.

But the massive business caught financial regulators off guard when its scale was first revealed in the prospectus for Ant’s $37bn initial public offering, and has been a focus of authorities’ scrutiny since they suspended Ant’s listing last November.

The newly licensed unit is called Chongqing Ant Consumer Finance and can issue consumer loans, borrow from banks and issue bonds, according to the announcement from the China Banking and Insurance Regulatory Commission.

Ant will shift its two consumer lending products — Huabei, which is similar to a credit card, and Jiebei, which offers small unsecured loans — to the unit.

Ant will also put up Rmb4bn ($625m) in registered capital for a 50 per cent stake in the business and its digital finance head Huang Hao will become the unit’s chair. Minority shareholders in the venture include Nanyang Commercial Bank, battery maker Contemporary Amperex Technology and the country’s biggest distressed-debt investor China Huarong Asset Management, among others.

“It’s positive that Ant has finally received a consumer finance licence,” said Kou Xiangtao, a payments industry analyst and head of industry media firm ShowFin. “But at the same time, it means one of Ant’s core businesses is being separated off.”

Revenues from lending fees contributed 39 per cent of the group’s revenue in the first six months of last year, and analysts say it is a highly profitable business for Ant. Now its partners will share some of the benefits.

Analysts say the approval does not fully solve Ant’s challenge of funding its lending business going forward. Regulations for consumer lending companies restrict the new unit to lending only 10 times its registered capital, or roughly Rmb80bn, which is a sliver of Ant’s Rmb2.2tn in outstanding loans as of June 30 last year.

“The unit will likely need to raise more capital soon,” said Dong Ximiao at the Zhongguancun Internet Finance Institute in Beijing. “Either they find enough capital to support the current scale of their business or they exit some business,” he said.

The new licence will allow Ant to continue packaging a portion of the loans it issues as asset-backed securities, which may not be counted towards the leverage limit, but Dong said regulators were strictly controlling the scale of Ant’s ABS issuance. Last month, the issuance of two of Ant’s ABS products worth Rmb18bn were cancelled in Shanghai.

In the past, the majority of Ant’s outstanding loans were underwritten by its banking partners, but regulators are also cracking down on this co-operation and imposing online lending limits for the small and medium-sized banks which extended a large portion of the loans.

An unnamed regulator at the CBIRC gave an interview to state media on Thursday implying that banks would be able to continue lending through Ant’s Alipay app, but would do so under their own brand name instead of Huabei or Jiebei.

The official said Ant had six months from the opening of the consumer finance unit to complete the “rectification” of Jiebei and Huabei. Ant said it would work with the other shareholders of the new consumer finance unit “to serve the needs of consumers” and continue “enhancing the quality of financial services and risk management capabilities.”