Mumbai: Reserve Bank of E-Lending Norms Proposed India will have an impact on many digital lenders who take credit risk while distributing loans for others because these arrangements can be prohibited.
Regulations, which stop carrying under the RBI umbrella entity that facilitates loans using technology, wants to get rid of non-lenders who provide guarantees for loans.
Although this reduces systemic risk accumulation through loans outside the balance sheet by unregulated players, still leaving the gray area for entities that are not regulated to operate as a distributor.
The RBI report notes that the Bank has lent RS 1.1 Lakh Crore through digital mode, while NBFC has advanced Rs 23,000 Crore through this route.
Most of these are in the form of unsecured personal loans for several thousand rupees.
But this has a short term and produces a high portfolio.
According to a report by Macquarie, while many digital lenders will be beaten, Paytm is safe because it is not involved in the loan settings where it provides the default warranty for the first loss (FLDG) to the actual lender.
“This report recommends that all Fintech loans must be reported directly to the credit bureau.
It also prohibits sharing of credit risk between Fintech and Bank / NBFC in the form of a FLDG agreement,” said Associate Director Macquarie Capital Suresh Ganapatati in the report.
He added that while Paytm was in clear here because he planned to act as a pure distributor for consumer loans, some players in the Fintech industry for whom this was the norm would be greatly affected.
While RBI aims to ban the Fintech platform, determine which guarantee for credit risk may be complicated because all lenders find a certain level of compensation from the service provider.
“Even where FLDG settings do not exist, lenders do have agreements with distributors to compensate their losses from losses caused by agent or employee actions.
This does not mean that the distributor takes credit risk.
The challenge will be in distinguishing the clause from the default guarantee,” Sandeep Srinivasa said, the founder of the Microlending Startup Red Carpet.
“The proposal will destroy many existing loan sharks and curb unfair practices.
In addition, recommendations for digital lenders to provide key statements in standard formats, including the annual percentage level, will provide a better perspective to the borrower on the high The percentage level they are willing to be borne, “said Gaurav Chopra, founder & special member CEO, and founding members of the Indian digital loan association (DLAI).
In 2019, a high-level committee in micro, small and medium enterprises led by former Chairman of the Sebi U K Sinha recommends loan service providers (LSP).
The Sinha panel said that the regulator had to create a new LSP category, which would be the borrower agent.
LSPS offers individual suggestions must act based on the best interest of borrowers, respecting the duties of fiduciary disclosures, loyalty, and caution.
Similarly, lenders such as direct sales agents (DSA) and brokers must be asked to reveal conflicts that endanger their impartiality, such as incentives from lenders to market loans at higher prices against others, and clearly pay the costs they add to loan.
However, the proposal for loan service providers was not taken.
“The RBI report has suggested that the loan product web aggregator be subject to discipline and the code of ethics.
The aggregator regulator will be positive for the industry because it still leaves the entity to operate with outside rules,” other digital lenders who do not want to be named.
The Signy Tech Co-Founder & Ankit CEO said flatly said, “At present, this industry sees a lot of non-regulated digital lenders operating in a room that doesn’t even have a basic KYC examination.
We believe that if the recommendation passes, it will not only help protect Consumers but also limit data privacy violations while limiting fraud transactions.
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