RBI Co-lending Guidelines Aim to Lower Digital Lending Rates

The Reserve Bank of India (RBI) has held consultations with top fintech bodies to review feedback on draft colending guidelines.

• Meeting participants included representatives from:
  • Fintech Association for Consumer Empowerment (FACE)
  • Unified Fintech Forum (UFF, formerly DLAI)
  • Fintech Convergence Council (FCC)

Key Proposals in Draft Colending Guidelines

• Blended Interest Rate Mechanism:
  • Final lending rate = Weighted average of interest rates by partner lenders.
  • Aimed at lowering borrowing costs for end-users.
• Expanded Scope:
  • Includes all regulated entities.
  • Extended beyond priority sector lending.

Co-lending Models

• CLM 1: Joint origination and disbursement of loans by banks and NBFCs.
• CLM 2: NBFCs disburse loans initially, and banks reimburse up to 80% of the loan amount later.

Call for NBFCs on UPI Credit Line

• Fintechs urged RBI to allow NBFCs to offer credit via UPI, like small finance banks (SFBs).
• RBI cautious, may allow only top-tier NBFCs due to regulatory concerns on capital and compliance.

Compliance Improvements

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• Fintechs highlighted enhanced compliance practices in response to past regulatory scrutiny.
• Reference to RBI’s October 2024 action against four NBFCs for charging excessive interest.

Implication

• Final rules may help regulate digital lending rates, promote fair lending practices, and ensure consumer protection.

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