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Rbi report will cleanse fintech lending ecosystem and enable calibrated growth: experts

Seeking to protect the interests of clients, a Reserve Bank of India task force has suggested the enactment of separate legislation to prevent illegal digital lending through apps.

Other suggestions from the working group are to subject digital lending applications to a verification process by a nodal agency and to establish a self-regulatory organization (SRO) covering participants in the digital lending ecosystem.

Kunal Varma, co-founder of Freo & Moneytap, and Krishnan ASV, Senior Analyst – BFSI at HDFC Securities, explained how the framework will help the fintech lending environment, in an interview with CNBC-TV18.

When asked if this could be a game-changer, Varma said, “It could potentially create a lot of cleanups right now. You see over 1,100 loaner apps, and of those around 600 were probably illegal, like the report indicated, so the idea is to put in place a monitoring mechanism, which protects customers from fraudulent offers, any predatory lending practices, illegitimate risk-taking, all of this will be scrutinized. meticulous.

“So I think what the regulator intends to do could potentially be a game-changer, as it will eliminate illegitimate gamblers, clean up the industry, make it better for consumers and also more competitive for genuine businesses that are doing business. legitimate business. »Says Verma.

Regarding Mobikwik’s plan to delay its IPO, Varma said: “I can say with certainty that the markets are becoming more and more cautious about the authenticity of companies and the legitimacy of companies. So maybe that’s a bit of a wake-up call.

Regarding the first loss default guarantee (FLDG), he said: “What the report says is that no synthetic structure like the FLDG can be formulated between a regulated entity and an unregulated entity. . I think in isolation they didn’t say too much whether an FLDG between two regulated entities can exist or not. I think that as a mechanism FLDG has its advantages. As long as both parties involved are regulated entities and there is clear transparency in terms of risk ownership and customer documentation, I think there is room for this model.

Krishnan said, “The overriding theme here of the Reserve Bank of India is to act before it becomes a very large system. You don’t want to go down the China route, where it becomes a really big system, and then you start taking corrective action, which then hurts multiple stakeholders. So you want this to develop in a controlled environment, in a calibrated fashion rather than exploding exponentially at this point. “

He added, “He wants these business models to kind of reinvent themselves, make sure they now apply for the NBFC license if they haven’t already, etc.” happy to just offer the sandbox of growth.

Regarding the NBFC license, Krishnan said, “I think there are a few other digital players or fintech players who have an NBFC license as well. So we know that ZestMoney, even though it’s “Buy Now, Pay Later” (BNPL) under the Zest brand, has an NBFC under a very different name, just like Simpl. So a few of these FinTech players have NBFCs. Capital Float, it works with Amazon, but it’s an NBFC with a license. So I think a few have the license, many don’t and those who don’t will now have to come under the jurisdiction of the RBI and just register as an NBFC and so on.

He added: “More importantly, I think the task force recognizes that digital lending gets nowhere. They recognized that all retail loans, many SME loans will go digital and therefore they want to be on the right side of the regulations. “

For a full interview, watch the accompanying video.

(Edited by : Dipikka Ghosh)

First publication: STI


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