Mumbai: The reserve Bank of IndiaThe proposed e-lending norms of the U.S. will impact many digital lenders who take on credit risk while disbursing Loan For others because these arrangements can be banned. Regulations, which prevent less from bringing under reserve Bank of India Umbrella lending facilities using technology seek to weed out non-lenders who provide guarantees for loans.
While this reduces systemic risk creation through off-balance sheet lending by unregulated players, it still leaves a gray area for unregulated entities to act as distributors. The RBI report notes that banks 1.1 lakh crore has been lent through the digital medium, while NBFCs have lent Rs 23,000 crore through this route. Most of these are in the form of unsecured personal loans of Rs 2,000. But these have a shorter tenure and result in higher portfolio churn.
According to a Macquarie report, while many digital lenders will be affected, Paytm is safer as it does not engage in lending arrangements where it offers first loss default guarantee (FLDG) to genuine lenders. “The report recommends that all fintech loans should be reported directly to credit bureaus. This is credit risk-sharing between fintechs and banks/NBFCs in the form of FLDG agreements,” said Suresh Ganapathy, associate director, Macquarie Capital, in the report. He said that while Paytm is clear here as it plans to act as a net distributor for consumer loans, many players in the fintech industry for whom it is a role model have been seriously affected. Will be
While the RBI aims to ban fintech platforms, determining which guarantees cover credit risks can be difficult as all lenders want a certain level of compensation from service providers. “Even where there is no FLDG arrangement, the lenders have an agreement with the distributor to indemnify them from any damages caused by the action of the agent or employee. This does not mean that the distributor is taking credit risk. The challenge would be to separate such a clause from the default guarantee,” said Sandeep Srinivas, founder of microlending startup Red Carpet.
“Proposals will demolish many existing” Loan Curb sharks and unfair practices. In addition, the recommendation for digital lenders to provide a key fact statement in a standardized format, including the annual percentage rate, will give borrowers a better perspective about the higher percentage rate they are willing to tolerate,” said Gaurav Chopra, Founder & CEO Said CEO IndiaLends, and founding member of Digital Lending Association of India (DLAI).
In 2019, a high-level committee on Micro, Small and Medium Enterprises, headed by former SEBI chairman UK Sinha, recommended Debt Service Providers (LSPs). Sinha panel had said that the regulator should create this new category of LSP, which will be the agent of the borrowers. LSPs providing individual advice must act in the best interest of the borrowers, while respecting the fiduciary duties of disclosure, loyalty and discretion. Similarly, lending agents such as direct sales agents (DSAs) and brokers must be required to disclose conflicts that compromise their fairness, such as incentives from lenders to over-value others for high-value loans, and clearly break down the charges they add to the loan.
However, the proposal of the credit service providers was not considered. “The RBI report has suggested that web aggregators of loan products should be subjected to discipline and code of conduct. Regulating aggregators would have been positive for the industry as it still leaves entities outside regulation to operate,” said another digital lender, who did not wish to be named.
Ankit Rata, Co-Founder and CEO, Signzy Tech said, “Currently, the industry is witnessing many unregulated digital lenders operating in this space, who do not even have basic KYC checks. We believe that if the recommendations are passed, it will not only help protect consumers but also prevent data privacy violations while preventing fraudulent transactions.
While this reduces systemic risk creation through off-balance sheet lending by unregulated players, it still leaves a gray area for unregulated entities to act as distributors. The RBI report notes that banks 1.1 lakh crore has been lent through the digital medium, while NBFCs have lent Rs 23,000 crore through this route. Most of these are in the form of unsecured personal loans of Rs 2,000. But these have a shorter tenure and result in higher portfolio churn.
According to a Macquarie report, while many digital lenders will be affected, Paytm is safer as it does not engage in lending arrangements where it offers first loss default guarantee (FLDG) to genuine lenders. “The report recommends that all fintech loans should be reported directly to credit bureaus. This is credit risk-sharing between fintechs and banks/NBFCs in the form of FLDG agreements,” said Suresh Ganapathy, associate director, Macquarie Capital, in the report. He said that while Paytm is clear here as it plans to act as a net distributor for consumer loans, many players in the fintech industry for whom it is a role model have been seriously affected. Will be
While the RBI aims to ban fintech platforms, determining which guarantees cover credit risks can be difficult as all lenders want a certain level of compensation from service providers. “Even where there is no FLDG arrangement, the lenders have an agreement with the distributor to indemnify them from any damages caused by the action of the agent or employee. This does not mean that the distributor is taking credit risk. The challenge would be to separate such a clause from the default guarantee,” said Sandeep Srinivas, founder of microlending startup Red Carpet.
“Proposals will demolish many existing” Loan Curb sharks and unfair practices. In addition, the recommendation for digital lenders to provide a key fact statement in a standardized format, including the annual percentage rate, will give borrowers a better perspective about the higher percentage rate they are willing to tolerate,” said Gaurav Chopra, Founder & CEO Said CEO IndiaLends, and founding member of Digital Lending Association of India (DLAI).
In 2019, a high-level committee on Micro, Small and Medium Enterprises, headed by former SEBI chairman UK Sinha, recommended Debt Service Providers (LSPs). Sinha panel had said that the regulator should create this new category of LSP, which will be the agent of the borrowers. LSPs providing individual advice must act in the best interest of the borrowers, while respecting the fiduciary duties of disclosure, loyalty and discretion. Similarly, lending agents such as direct sales agents (DSAs) and brokers must be required to disclose conflicts that compromise their fairness, such as incentives from lenders to over-value others for high-value loans, and clearly break down the charges they add to the loan.
However, the proposal of the credit service providers was not considered. “The RBI report has suggested that web aggregators of loan products should be subjected to discipline and code of conduct. Regulating aggregators would have been positive for the industry as it still leaves entities outside regulation to operate,” said another digital lender, who did not wish to be named.
Ankit Rata, Co-Founder and CEO, Signzy Tech said, “Currently, the industry is witnessing many unregulated digital lenders operating in this space, who do not even have basic KYC checks. We believe that if the recommendations are passed, it will not only help protect consumers but also prevent data privacy violations while preventing fraudulent transactions.
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