The Reserve Bank of India (RBI) on Friday shared that it plans to introduce a unified regulatory framework for connected lending across all regulated entities.
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RBI Governor Shaktikanta Das highlighted the need for a comprehensive approach, stating that existing guidelines on connected lending are limited in scope and lack uniform applicability to all regulated entities.
“Connected lending or lending to persons who are in a position to control or influence the decision of a lender can be of concern, if the lender does not maintain an arm’s length relationship with such borrowers. Such lending can involve moral hazard issues leading to compromise in pricing and credit management,” he said.
It may be noted that the unified framework aims to strengthen the oversight of pricing and credit management by regulated entities, addressing concerns related to lending to individuals capable of influencing a lender’s decisions.
The RBI will release a draft circular for public comments as part of this regulatory initiative.
“The extant guidelines on the issue are limited in scope and are not applicable uniformly to all regulated entities.
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It has accordingly been decided to come out with a unified regulatory framework on connected lending for all the regulated entities of the Reserve Bank. A draft circular in this regard will be issued for public comments,” the RBI Governor added.
Analysts suggest that this decision is likely linked to bank loans extended to Non-Banking Financial Companies (NBFCs).
Rajiv Sabharwal, MD & CEO, Tata Capital Ltd, said, “RBI’s vigilance on lending and loan growth is in the right spirit to guide NBFCs to further enhance customer centricity. The RBI has also made the players aware on the need for regulatory framework on web aggregation.
Amongst other things, the RBI said it will come up with a regulatory framework for web-aggregators of loan products (WALP). WALP entails aggregation of loan offers from multiple lenders on an electronic platform which enables the borrowers to compare and choose the best available option to avail loan from one of the available lenders, said RBI.
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“Based on the recommendation of the Working Group, it has been decided to bring such loan aggregation services offered by the Lending Service Providers (LSPs) under a comprehensive regulatory framework. The framework will focus on enhancing the transparency in the operations of WALPs, increase customer centricity and enable the borrowers to make informed choices. The detailed guidelines will be issued separately,” RBI said.
