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Business Standard
5 days ago
- Business
- Business Standard
New DLG provisioning norms: Fintech bodies hope for relief from RBI
Fintech bodies have raised concerns about potential double-provisioning resulting from the Reserve Bank of India's (RBI 's) new mandate, which disallows lenders from offsetting default loss guarantees (DLGs) provided by loan service providers (LSPs) against provisions for stressed loans. These bodies are now collecting data from their members to present the likely impact of the mandate to the RBI. Lenders have been directed to make the necessary provisions by September 30. Fintech bodies are hopeful of gathering sufficient data on this segment by then, which could potentially influence the regulator's decision. The RBI has mandated finance companies to make full provisions on loans sourced through LSPs, regardless of the DLGs provided by these entities to the lenders. This is likely to have an impact on origination of such loans as it reduces the attractiveness of the portfolio for the finance companies. 'The RBI has communicated to some lenders that regulated entities should not offset DLG when it comes to provisioning. We have, in turn, suggested that the (DLG) model has been working now and there will be double-provisioning if it (DLG) is not considered. This means that an LSP provisions a separate 5 per cent and if the RE (regulated entity) also separately provisions (for expected credit loss), then efficient utilisation of capital would not take place,' said Jatinder Handoo, chief executive officer (CEO), Unified Fintech Forum. 'We will go back to the regulator with some data and information since this is a consultative process. Although it's a little difficult since this is a DLG portfolio, which I am not very sure is even marked in the credit bureau separately. We will request our members to give us data in terms of portfolio, customers, geographies, ticket size, and gender segregation,' he said. DLG is a contractual arrangement between the lender and an LSP, under which the latter guarantees to compensate the bank for losses due to default up to a certain percentage of the loan portfolio of the bank. As per RBI guidelines, lenders have to ensure that the total amount of DLG cover on any outstanding portfolio shall not exceed 5 per cent of the total amount disbursed out of that loan portfolio at any given time. In case of implicit guarantee arrangements, the DLG provider shall not bear performance risk of more than the equivalent amount of 5 per cent of the underlying loan portfolio. As a result, RBI guidelines say, provisioning shall be the responsibility of the RE as per the extant asset classification and provisioning norms, irrespective of any DLG cover available at the portfolio level. Additionally, the fintech bodies, in their meeting with RBI last month, have also apprised the regulator of the practical difficulties the industry is facing after the new digital lending guidelines came in. As per new norms, digital lenders, especially LSPs, have to show different options to a borrower and allow them to make an informed choice when they visit a marketplace or LSP's website. This, the industry said, will impact the customer experience. 'We are for transparency and openness of the system; this may be necessary. However, LSPs partner with multiple REs, with each having a different credit policy, such as restrictive or flexible. REs will have to complete soft underwriting of the customers and only then extend an offer,' Handoo said, adding that if a customer says they want a loan from lender A, and the person has five lenders as options, they expect surety and timely disbursement of the loan. However, they may not know whether their credit profile is appealing to a particular RE, in that case timeliness and customer user experience get impacted. In the meeting, the fintech industry bodies urged the RBI to allow non-banking financial companies (NBFCs) to offer credit lines through the Unified Payments Interface (UPI) after the facility was extended to small finance banks (SFBs) earlier this year. Industry sources said the regulator may not yet be open to including NBFCs, given that SFBs only recently got access to the feature. The RBI was also briefed on how the fintech sector has improved compliance practices over the past few quarters, following earlier scrutiny by the regulator.
Yahoo
10-02-2025
- Business
- Yahoo
India's central bank launches exclusive internet domains to combat cyber threats
The Reserve Bank of India (RBI) is set to introduce exclusive internet domains for financial sector participants, including banks and non-banking entities, to enhance cybersecurity. Indian banks will be assigned a ' domain, while non-bank entities will receive a ' domain. In a statement, the banking regulator said: 'This initiative aims to reduce cyber security threats and malicious activities like phishing; and, streamline secure financial services, thereby enhancing trust in digital banking and payment services.' Registrations for these exclusive domains will commence in April. The Institute for Development and Research in Banking Technology (IDRBT) will serve as the exclusive registrar for these domains. Digital Lenders Association of India CEO Jatinder Handoo, as reported by Business Standard, said: 'RBI Governor's emphasis on rising cyber threats and digital risks underscores the importance of strengthening financial sector resilience. The introduction of the ' domain for financial institutions is a proactive step in securing the digital ecosystem.' The move follows a rise in banking frauds, as reported by the RBI. In the first half of the fiscal year 2024-25, banking fraud cases surged to 18,461, with a financial implication of Rs213.67bn ($2.49bn), marking an eightfold increase from the previous year. During FY 2023-24, banks reported 36,066 fraud cases, more than double the 13,537 cases in FY 2022-23. Despite the rise in cases, the RBI noted that the reported fraud amount for FY 2023-24 was the lowest in a decade, and the average fraud value was the lowest in 16 years. Internet and card frauds accounted for 44.7% of the total fraud amount and 85.3% of the cases in FY 2023-24. Private sector banks reported 67.1% of the total fraud cases in FY 2023-24. However, public sector banks had the highest share in terms of the amount involved in card and internet frauds across all bank groups. To further enhance payment security, the RBI has proposed additional factor authentication (AFA) for online international card-not-present (CNP) transactions. 'This will provide an additional layer of security in cases where the overseas merchant is enabled for AFA,' the RBI said. "India's central bank launches exclusive internet domains to combat cyber threats " was originally created and published by Retail Banker International, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
