Don't mess with the RBI!
Last Friday, the Reserve Bank of India released revised guidelines for NBFC-P2P Lending Platforms. This action was in a way overdue. The issue of systemic risks rising in this sector had been flagged earlier - read Tamal Bandopadhyay’s detailed illustrations last month of violations of guidelines by firms. For instance, P2P firms were offering assured minimum returns, allowing instant liquidity options and earning from the spread between lending and borrowing – all of which are now barred explicitly. The latest revisions were done to ensure that compliance framework is simple to follow and precise. The message is clear – even as the regulator wants to encourage innovative tech-enabled access to finance, financial stability and customer protection are paramount. Read Neil Borate for an overview of the latest move, including the first reactions from industry. Dinesh Unnikrishnan explains why P2P lenders should stay within the boundaries etched by the regulator as he highlights the Chinese experience last year where many investors lost money due to rising frauds and non-repayments, leading to a complete shutdown of the sector.
The UPI system has an additional boost with RBI opening up the UPI platform to non-bank users by allowing “delegated payments”. NPCI launched the UPI Circle, which has been welcomed by industry. Adoption and usage of UPI is expected to grow significantly in segments that were out of the loop before, like minors and senior citizens. However, for all the positive outcomes, Arundhati Ramanathan points out there are potential problems to watch out for. One important fallout could be the perpetuation of incumbent dominance and market concentration, even as the NPCI is looking to cap market share. Another one is that of easy pickings for fraudsters especially among new users.
In fact, with increased adoption of UPI, scams have also been on the rise – read recent reports by Neelanjit Das and Priti Gupta. Deepti George and Anubhutie Singh have set out insights from a study by Dvara Research into UPI scams. The study examines putting in place mechanisms within the UPI apps to alert and protect users and also systemic measures that call for interactive UPI databases, post-scam recourse channels, streamlining complaint registration, information sharing amongst agencies etc. There is a lot to be done to ensure that the digital financial system is secure, especially for the most vulnerable segments. Read Raghu Mohan’s report on the steps being taken by the RBI and industry on tackling financial cyber fraud. However, even as legitimate bank customers are harassed on KYC compliance, fraudulent mobile connections abound in the country – the Department of Telecom has recently identified 8.1 million such connections - making identification of fraudsters a challenge.
On a separate note, climate risk is increasingly appearing on the agenda of the central bank, featuring in RBI Deputy Governor Dr Patra’s speech as one of the emerging challenges for deposit insurers. Read Srinath Sridharan’s deep dive into the impact of climate change on deposit insurers. Meanwhile on the ground, the fallout of adverse weather events on household financial stress is becoming increasingly stark – India’s largest banks are reportedly seeing greater delays in loan repayment from farmers and rural borrowers in the first quarter, with heatwaves and erratic rains as contributing factors. A new report, "Managing Monsoons in a Warming Climate" by IPE Global Limited and Esri India estimates that more than 84 percent of districts in India are susceptible to extreme heat waves, and 70 per cent are going through increased frequency and intensity of extreme rainfall events. The task of financial inclusion is becoming more of a challenge in such times. Government and industry must collaborate towards more granular understanding of the risks to households in order to provide appropriate financial support.
This month we have two pieces highlighted for you – a) A study by Natasha Agnes D’cruze analyses the intra-year fluctuations in income faced by low-income households to show more households qualify as poor using monthly income estimates rather than under the traditional annual income approach. Government schemes and financial products would be more impactful when designed to account for these intra-year fluctuations; b) Yasmin Bin-Humam and Simrin Makhija report on the insights from a workshop of financial sector regulators from Rwanda, Colombia, Brazil and Malaysia that explored strategies to collect and utilize gender-disaggregated data to enhance women’s financial inclusion.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
RBI’s Report on Currency and Finance 2023-24 focuses on India’s Digital Revolution.
Shouvik Das and Shayan Ghosh, Mint, write on the banks taking up the challenge of identifying mule accounts as digital banking frauds rise.
Chetna Gala Sinha, Mann Deshi Bank and Anagha Kamath write on how rural women are leading the spread of financial inclusion.
Aanandita Sikka and Rajashree Padmanabhi, CPI, have an overview on the need for more financial support towards heat resilience.
Ashish Desai, SPJIMR, and Hrushikesh Mehta, ONDC, write on the power of Account Aggregator to fill unmet credit need of MSMEs.
Priyadarshini Ganesan, Dvara Research, has a paper out that seeks to review the landscape of agriculture finance in India from an implicit sustainability standpoint.
RBI’s Statement on Developmental and Regulatory Policies announced new initiatives to set up a public repository of digital lending apps, increase the frequency of reporting of credit information to CICs from monthly intervals to fortnightly basis, increase the transaction limit of UPI payments from Rs. one lakh to Rs. five lakh and so on.
Manish Lunia, FlexiLoans, writes on the tranformative impact OCEN can have on MSME financing, with a supportive policy framework.
Dilip Modi, Spice Money, writes on the future of digital wallets in India with the advent of third-party UPI access for PPIs.
Garima Bora, The Economic Times, reports on PayNearby's DigitalNaari initiative.
Abhijeet Kumar, Business Standard, reports on top payment firms collaborating with RBI and NPCI to introduce e-rupee access within the next three to four months.