RBI will come out with new rules for loan aggregators

The Reserve Bank of India (RBI) governor Shaktikanta Das on Friday, December 8, announced the central bank's decision to establish a framework for web aggregation of loan products. "We will be setting up a fintech repository," Das said while announcing the December bi-monthly monetary policy.

Emphasising the stance of the RBI, Das reinforced the necessity of preemptive action, stating, "We do not wait for the house to catch fire and then act."

He said that financial entities are partnering with fintechs and the move will lead to more transparency in digital lending. Das added that RBI has decided to come out with a unified regulatory framework on connected lending for all regulated entities (REs), too.

"This will strengthen pricing of credit for all REs," he said.

In another conversation, Chief Economic Advisor V Anantha Nageswaran underscored the significance of a balanced approach towards economic growth, advocating for what he termed as "tough optimism."

Nageswaran highlighted the necessity of maintaining a realistic perspective while nurturing optimism for the future. "Unless we have our feet firmly planted on the ground, we cannot aspire to soar in the future," he said.

Citing the recent surge in unsecured loans at a rate of 30%, Nageswaran acknowledged the RBI's proactive step of augmenting risk weights.

According to Anand Agrawal, Co-Founder and CPTO, Credgenics, RBI’s proposal to create a fintech repository is a very positive move for the industry, as it will further catalyse innovation by fostering transparency.

This development follows the recent cautionary measures implemented by the central bank to avert financial risks in the lending sector. Last month, Governor Das warned banks to undertake stress tests and said all forms of “exuberance” should be curbed.

Lately, the amount of unsecured loans has been growing fast, leading to an increase in risk weights and, therefore, higher lending rates to slow down the rising risks.

In November, RBI also announced stricter norms for personal loans and credit cards in the form of higher capital requirements. The new regulations entail a 25-percentage-point increase in risk weights for banks and NBFCs, necessitating a higher capital requirement for each loan issued.

Specifically, the risk weight on retail loans, covering personal loans and credit card loans, has been upped to 125%, up from 100%. Additionally, the RBI enhanced risk weights for credit card exposures by 25 percentage points to 150% for banks and 125% for NBFCs.

However, certain loans such as housing, education, vehicle loans, and those secured by gold or gold jewellery are excluded from these revised risk weight guidelines.

The RBI’s move is in sync with worries it had expressed about the high growth in unsecured lending. The worry must be based on some data which shows early signs of delinquency.

As per the central bank, concerns arose due to an unusually high surge in these types of loans, particularly personal loans and credit cards, surpassing the overall bank credit growth of around 15% in the past year.