Reserve Bank of India and Digital Lending
The Reserve Bank of India (RBI) anticipates a reduction in the final interest rate charged to borrowers by digital lenders with the implementation of new draft guidelines on co-lending.
Meeting with Fintech Representatives
- Top officials from RBI’s Department of Regulation conducted a meeting with representatives from the fintech industry.
- Participants included executives from the Fintech Association for Consumer Empowerment (FACE), Unified Fintech Forum (UFF, formerly DLAI), and the Fintech Convergence Council (FCC).
Draft Co-lending Guidelines
- Discussion focused on any friction caused by the draft co-lending guidelines and the operational models — CLM 2 (co-lending model 2) versus CLM 1.
- The proposed norms suggest a blended interest rate, calculated as a weighted average of rates by participating lenders, to reduce borrowing costs.
- The framework intends to blend final interest rates with each lender’s funding share.
Previous Regulatory Actions
The RBI had previously taken action against four non-banking financial companies (NBFCs) for charging excessive interest rates, but restrictions were later lifted.
Co-lending Framework Details
- CLM 1: Involves banks and NBFCs jointly originating and disbursing loans.
- CLM 2: Involves NBFCs disbursing loans with banks reimbursing up to 80% of the amount later.
- Feedback on the draft guidelines has been submitted to the regulator for review.
Expansion of Co-lending Scope
The RBI expanded the scope of co-lending to include all regulated entities and extended it beyond priority sectors.
Call for NBFC-led Credit Line on UPI
- Fintech industry bodies requested the RBI to permit NBFCs to offer credit lines through the Unified Payments Interface (UPI), following its extension to small finance banks (SFBs).
- Despite the request, the RBI might not be open to including NBFCs immediately, potentially limiting it to the top NBFCs due to capital and scale requirements.
Regulatory Compliance Improvements
The fintech sector has reportedly improved compliance practices in recent quarters, following earlier scrutiny by the RBI.
