Digital payments and financial services player Paytm said on August 11 that the company will be changing its internal systems to ensure that loan disbursals and repayments are routed directly to and from the bank accounts of the borrowers and the lending partners, as per the latest Reserve Bank of India (RBI) approved norms for digital lenders.
The company's CEO Vijay Shekhar Sharma said in an investor call that besides the one change, the company is already in adherence to the rest of the norms approved by RBI.
Paytm, like most fintechs, acts as a technology service provider for customers to avail loans that are disbursed by its lending partners.
"The disbursement of loans should happen directly from the lender's bank account to the consumer, which is a little bit of technology work for us. We will change that workflow, help our lenders open bank accounts at places and then issue loans and give them an Application Programming Interface (API)," Sharma said.
In the recommendations by the Working Group on Digital Lending that the RBI accepted for implementation on August 10, the regulator said that all loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the registered lender without any pass-through/pool account of the loan service provider (LSP) or any third party.
Paytm is also a payment aggregator (PA), providing services to accept payment instruments from customers. As part of the process, they pool the funds received from customers and transfer them to merchants after a certain time.
As per the current norms, the flow of money will have to be changed by Paytm to ensure that money does not pass through any nodal account.
Bhavesh Gupta, CEO of Lending and Head of Payments at Paytm said, "The interface of moving funds through a nodal account is for convenience rather than anything else. If money has to go directly between bank accounts, then it may need a few maybe days of operational changes, but it is definitely implementable."
Months after the RBI hinted that it is ready to release the norms, it approved 12 guidelines as hygiene norms to be followed by regulated entities with a focus on consumer safety and transparency.
The key point of contention was the RBI’s views on first loss default guarantee (FLDG), a lending model between digital lending fintechs and their partner banks and NBFCs. Under these agreements, the fintech promises to compensate the partners up to a predetermined percentage in case a customer fails to repay the loan.
The RBI has said that these recommendations are under consideration. Meanwhile, regulated fintechs have been asked to adhere to the master directions on securitisation of standard assets.
"I believe that RBI is of the opinion that FLDG is not that bad that it should be removed. This is how regulated NBFCs work. As of now, the idea is that FLDG is not permitted for unregulated entities," Sharma said.
Industry players believe that the specific norm of routing money directlt between bank accounts is meant to curb money laundering and practices of falsifying accounts by unprincipled lenders.
The norms also ask for a cooling-off period to be granted to customers to exit the loan, in light of recent complaints where customers claimed that they were granted approval for loans sought by mistake. Importantly, the RBI has said that loans extended through merchant platforms are also supposed to be reported to credit information bureaus.It has mandated that no data should be collected and credit limit should not be increased without the explicit consent of the borrower. Most importantly, RBI has reiterated that all lending, including that done over merchant platforms must be reported to credit information bureaus for transparency.