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Central bank bars P2P startups from giving default loss guarantee in tie-ups with NBFCs

Economic Times

Economic Times · 1y ago

Central bank bars P2P startups from giving default loss guarantee in tie-ups with NBFCs

The Reserve Bank of India (RBI) has issued a directive stating that peer-to-peer lending platforms cannot offer default loss guarantees (DLG) to investors. This move further intensifies the scrutiny on the digital lending sector. The RBI's decision is expected to impact P2P platforms that relied on affiliates to source customers. The regulator clarified that DLG is not permitted on loans arranged on NBFC-P2P platforms. While this action may improve governance in digital lending, it could also increase customer acquisition costs for P2P platforms. The P2P lending industry has faced regulatory scrutiny lately, prompting some companies to take preventive measures.

Related News

RBI Bars Default Loss Guarantee Agreements In P2P Lending Space

Inc42 · 1y ago

RBI Bars Default Loss Guarantee Agreements In P2P Lending Space

The Reserve Bank of India (RBI) has issued new guidelines for peer-to-peer (P2P) lending platforms, stating that they cannot have default loss guarantee (DLG) agreements with non-banking financial companies (NBFCs). DLG is a risk protection mechanism where the platform guarantees to cover defaults. This move by RBI aims to bring more responsibility and governance to the P2P lending sector but may also increase the cost of customer acquisition for these platforms. The new rules clarify the status of NBFC-P2P players who bear the risk of defaults rather than the lending platforms themselves.

Paytm Inks FLDG Pact To Boost Lending Play For Merchants

Inc42 · 11m ago

Paytm Inks FLDG Pact To Boost Lending Play For Merchants

Paytm has entered into a first loss default guarantee (FLDG) agreement with SMFG India Credit and gained approval from its board to provide a default loss guarantee of up to INR 225 Cr on loans disbursed by lending partners to merchants. This represents a shift in role for Paytm from loan distributor to providing a guarantee against defaults.

Now, RBI Tightens Noose Around P2P Lenders

Inc42 · 1y ago

Now, RBI Tightens Noose Around P2P Lenders

The Reserve Bank of India (RBI) is reportedly increasing its scrutiny of peer-to-peer (P2P) lending platforms due to breaches of regulatory norms, including Know Your Customer (KYC) guidelines. The central bank has requested details such as onboarding procedures, customer profiles, and IT infrastructure from P2P platforms. RBI aims to address concerns regarding risk mitigation and compliance. This comes after RBI cracked down on card networks recently. The central bank has been closely monitoring fintech platforms and NBFC-P2Ps before, and further actions are expected to enforce regulatory guidelines.

RBI Tightens Norms For NBFC-P2P Lending Platforms

Inc42 · 1y ago

RBI Tightens Norms For NBFC-P2P Lending Platforms

The RBI has tightened rules for NBFC-P2P platforms due to certain violations, including unapproved funds transfer mechanism. The central bank stated that no loans will be disbursed unless lenders and borrowers are matched as per platform policy. These regulations were introduced in 2017 to establish a framework for the registration and functioning of NBFC-P2P platforms in India.

RBI Governor Launches Fintech Repository

Inc42 · 1y ago

RBI Governor Launches Fintech Repository

The Indian central bank, Reserve Bank of India (RBI), has announced the establishment of a fintech repository to provide easy access to information on the country's fintech sector and startups. The RBI has also introduced a related repository called EmTech for regulated entities like banks and non-banking financial companies (NBFCs). Additionally, the RBI governor, Shaktikanta Das, unveiled the PRAVAAH portal and the Retail Direct Mobile App during the same announcement.

Paytm stock fully recovers from RBI ban, gains 11% to Rs 762

YourStory

YourStory · 10m ago

Paytm stock fully recovers from RBI ban, gains 11% to Rs 762

Shares of Indian fintech platform Paytm's parent company, One 97 Communications, have surged over 11% to Rs 762.20, recovering from losses incurred due to regulatory actions earlier this year. The Reserve Bank of India's restrictions on Paytm's payments bank unit resulted in a decline in the company's stock price. However, with the recent approval to resume UPI registrations, Paytm can rebuild its user base. The company aims to drive future growth through its First Loss Default Guarantee lending model, which will expand credit offerings while maintaining profitability. Additionally, Paytm's Q2 FY24 results were boosted by the sale of its ticketing business to Zomato.

P2P platforms taking on the lender role led RBI to read the riot act

Economic Times

Economic Times · 1y ago

P2P platforms taking on the lender role led RBI to read the riot act

The Reserve Bank of India (RBI) has tightened regulations for peer-to-peer (P2P) lenders after it was discovered that many were violating guidelines by holding large amounts of money in escrow accounts. P2P lenders were supposed to act as platforms connecting lenders and borrowers, but some were taking on the role of lending institutions and keeping funds, which is not permitted. The RBI's new regulations prohibit credit enhancement, guaranteed returns, and selling insurance products. Last week, the central bank issued a revised circular to enforce these new guidelines.

India’s highest-paid bankers are from non-banks. RBI can’t do much about it—yet.

Livemint

Livemint · 1y ago

India’s highest-paid bankers are from non-banks. RBI can’t do much about it—yet.

Indian shadow banks, such as Poonawalla Fincorp and Bajaj Finance, have been able to pay their CEOs hefty salaries, bonuses, and stock options due to their robust business growth. However, the Reserve Bank of India (RBI) is concerned about the rising CEO salaries in non-banking financial companies (NBFCs) and may bring them under its oversight. While NBFCs are opposed to RBI intervention in their pay structures, the central bank aims to regulate compensation policies for key managerial personnel at NBFCs to prevent excessive risk-taking.

Tech-based NBFCs try a balancing act after RBI action on unsecured loans

Economic Times

Economic Times · 1y ago

Tech-based NBFCs try a balancing act after RBI action on unsecured loans

Several mid-sized NBFCs in India, including DMI Finance, Vivriti Capital, and InCred Capital, have been expanding their unsecured lending activities through fintech partnerships. However, as the Reserve Bank of India urges caution in this area, these NBFCs will need to strike a balance between lending and conducting thorough borrower checks. The central bank has expressed concerns over potential risks associated with unsecured lending sourced through fintech firms.

Paytm ramps up lending efforts as revenue growth trickles back

The Arc Web

The Arc Web · 11m ago

Paytm ramps up lending efforts as revenue growth trickles back

Paytm reports an 11% QoQ revenue increase to ₹1,660 crore, though revenues fell 34% YoY. Paytm’s adjusted EBITDA loss reduced from ₹545 crore to ₹186 crore as expenses decreased. The sale of its entertainment business boosted its net profit to ₹930 crore and increased cash reserves to ₹9,999 crore. Paytm is ramping up its lending business, entering a ₹225 crore default loss guarantee agreement with SMFG India Credit, and disbursed ₹1,651 crore in merchant loans under this model.

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