RBI To Roll Out Fintech Repository And Unified Framework For Digital Lending Transparency

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced the establishment of a fintech repository and a unified regulatory framework for web aggregation of loan products. The decision was revealed during the December bi-monthly monetary policy announcement on Friday, December 8.

Das emphasized the proactive stance of the RBI, stating, "We do not wait for the house to catch fire and then act." The move is aimed at fostering collaboration between financial entities and fintechs, leading to increased transparency in digital lending. Additionally, the RBI plans to implement a unified regulatory framework on connected lending for all regulated entities (REs), aiming to strengthen the pricing of credit for these entities.

This development comes on the back of recent cautionary measures taken by the central bank to address financial risks associated with the burgeoning lending sector. In the previous month, Governor Das had urged banks to conduct stress tests and advised curbing all forms of financial "exuberance."

The surge in unsecured loans, which has been growing rapidly, has led to an escalation in risk weights and subsequently higher lending rates. In response to this trend, the RBI had already implemented stricter norms for personal loans and credit cards in November. The new regulations included a significant 25-percentage-point increase in risk weights for banks and non-banking financial companies (NBFCs), requiring higher capital requirements for each loan issued.

Specifically, the risk weight for retail loans, covering personal loans and credit card loans, was raised to 125%, up from the previous 100%. Furthermore, the RBI increased risk weights for credit card exposures by 25 percentage points to 150% for banks and 125% for NBFCs. Certain loans, such as those related to housing, education, vehicle loans, and those secured by gold or gold jewellery, are excluded from these revised risk weight guidelines.

The RBI's decision to establish a fintech repository and introduce a unified regulatory framework underscores the concerns expressed by the central bank regarding the high growth in unsecured lending. The worry is substantiated by data revealing early signs of delinquency in these types of loans, particularly in the segments of personal loans and credit cards, which have witnessed an unusual surge surpassing the overall bank credit growth of around 15% in the past year.

Governor Das's announcement reflects the central bank's commitment to staying ahead of potential financial risks and fostering a more transparent and resilient lending ecosystem.