The Reserve Bank of India's decision to make significant modifications to legislation governing digital lenders and fintech firms bodes good for the sector and may prompt them to rethink their compliance procedures, according to analysts. The RBI announced last week that it intends to establish a repository for fintech companies as well as a regulatory framework for web-aggregators of lending products, seeing the initiatives as vital to boosting transparency. The announcements were well received by experts. The idea of a repository, according to fintech companies and digital lenders, would promote more transparency, whereas the regulatory framework will give consumers more specific information about lenders.
On December 8, the RBI proposed the creation of a repository to collect critical information on fintech companies such as their activities, products, technology stack, and financial information. It stated that the data given to the repository would help in the development of relevant policy measures. "We encourage fintechs to voluntarily provide relevant information to this repository," RBI Governor Shaktikanta Das stated. The repository will be open in April 2024.
"The proposed fintech repository will be critical infrastructure," said Signzy co-founder Ankit Ratan. "It will be an effective step in limiting financial risks, reducing cyber crime, and increasing industry predictability." The move for a repository, according to Rajat Deshpande, co-founder of FinBox, may allow institutions to use a secure cloud facility, ensuring integrity and automatic compliance with regulatory criteria.
However, other experts believe that this will increase the compliance burden for fintech firms. "The voluntary submission of data to the repository may result in additional compliance processes for fintechs to adhere to," a senior expert stated on the condition of anonymity. Following the Monetary Policy Committee's decision to keep the policy rate steady, the RBI announced the following actions.
Web Loan Aggregation Framework
Borrowers can compare and select the finest available alternative by aggregating loan offers from numerous lenders on an electronic platform. According to the RBI, it has been agreed to place such loan aggregation services under a complete regulatory framework based on the advice of the Working Group on Digital Lending. According to Das, this approach will improve client centricity and transparency in digital lending.
"The digital lending ecosystem also comprises services that aggregate loan offers from lenders (called web-aggregation of loan products) for guidance of customers," he said.
According to Fibe co-founder Akshay Mehrotra, the online aggregation platform would provide consumers with a comprehensive perspective of lenders. "The framework will allow customers to make informed decisions and encourage a responsible ecosystem," Mehrotra said in a press release.
In August-September 2022, the RBI announced the regulatory framework for digital lending. This offered digital lenders with lending, operating, and collection criteria.
UPI Receives a Boost
Furthermore, the RBI raised the transaction limit for education and healthcare facilities utilising the universal payments interface (UPI) from Rs 1 lakh to Rs 5 lakh. UPI allows for quick transfers of funds between bank accounts.
"With the increase in UPI limit, users will be able to continue using the platform for high-value payments as well." The limit would no longer be a bottleneck, particularly for urgent payments," said Mandar Agashe, founder of Sarvatra Technologies. UPI transactions reached a new high in November, reaching Rs 17.4 lakh crore, up 1.4 percent from Rs 17.16 lakh crore in October.
In recent months, the central bank has actively engaged with the fintech sector through new initiatives and regulatory measures. On September 6, Das encouraged fintech firms to create a self-regulatory structure within the next year.
"I'd like to take advantage of this opportunity to urge and encourage fintechs to establish a self-regulatory organization," Das said during a lecture at the Global Fintech Fest 2023 in Mumbai.
Furthermore, deputy governor M Rajeshwar Rao stated that Indian authorities must "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 complete faith in the fintech's shareholders to change the landscape of small finance banks by advancing its financial inclusion goals.
