The Reserve Bank of India’s move to bring in key changes in regulations pertaining to digital lenders and fintech companies augur well for the sector and could prod them to rework their compliance process, experts said.
The RBI said last week it plans to launch a repository for fintech companies and lay down a regulatory framework for web-aggregators of loan products, pitching the moves as critical to improving transparency. Experts welcomed the announcements.
Fintech companies and digital lenders said the idea of a repository will promote more transparency, whereas the regulatory framework will provide consumers more detailed information about lenders.
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Fintech repository
The RBI said December 8 it proposed to set up a repository to capture essential information about fintech companies such as their activities, products, technology stack, and financial information. The information provided to the repository would help to design appropriate policy approaches, it said.
“We encourage fintechs to provide relevant information voluntarily to this repository," RBI governor Shaktikanta Das said. The repository is planned to be built by April 2024.
“The proposed fintech repository will serve as a critical piece of infrastructure. It will be an effective step in controlling financial risks, curtailing cyber frauds, and bringing predictability in the industry,” said Ankit Ratan, co-founder of Signzy.
Rajat Deshpande, co-founder of FinBox, said the move for a repository might help institutions to access a secure cloud facility, ensuring integrity and automatic compliance with regulatory guidelines.
Also read: RBI plans regulation for web aggregation of loan products in digital lending
However, some experts suggested this would increase the compliance burden for fintech companies.
“The submission of data to the repository, though voluntary, may lead to additional compliance processes for fintechs to adhere to,” a senior expert said on condition of anonymity.
The RBI announced these measures after the Monetary Policy Committee decided to leave the policy rate unchanged.
Framework for web loan aggregation
The aggregation of loan offers from various lenders on an electronic platform enables borrowers to compare and choose the best available option.
The RBI said based on the recommendation of the Working Group on Digital Lending, it has been decided to bring such loan aggregation services under a comprehensive regulatory framework. Das said this initiative will result in enhanced customer centricity and transparency in digital lending.
Also read: RBI proposes to set up fintech repository by April 2024
“The digital lending ecosystem also comprises services that aggregate loan offers from lenders (called web-aggregation of loan products) for guidance of customers,” Das said.
Akshay Mehrotra, co-founder of Fibe, said the framework for web aggregation will provide consumers with a holistic view of lenders. “The framework will allow customers to make informed decisions and encourage a responsible ecosystem,” said Mehrotra.
The RBI had introduced the regulatory framework for digital lending in August-September 2022. This provided digital lenders with guidelines on lending, operations, and collections.
UPI gets a boost
Additionally, the RBI increased the transaction limit for education and healthcare facilities using the unified payments interface (UPI) to Rs 5 lakh from Rs 1 lakh. UPI enables instant fund transfers between bank accounts.
“The increase in UPI limit will enable users to continue using the platform for high-value payments too. The limit would no longer be a bottleneck, especially when it comes to payments which are urgent in nature,” said Mandar Agashe, founder of Sarvatra Technologies.
UPI transactions clocked a fresh peak in value, hitting Rs 17.4 lakh crore in November, up 1.4 percent from Rs 17.16 lakh crore in October.
The central bank has actively engaged with the fintech sector in the past few months with new initiatives and regulatory measures. On September 6, Das urged fintech companies to establish a self-regulatory system over the next year.
"I would like to use this opportunity to urge and encourage the fintechs to establish a self-regulatory organisation," Das said in a speech at the Global Fintech Fest 2023 in Mumbai.
Additionally, M Rajeshwar Rao, deputy governor, said Indian regulators need to “continuously work to redefine regulations and regulatory frameworks to support these innovations and delivery."
The regulator’s approval of the merger between fintech company slice and the North East Small Finance Bank in October indicated that the central bank has full confidence in the fintech’s shareholders to bring a sea change to the small finance bank landscape by advancing its financial inclusion goals.
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