Digital lending Balloon: Navigating the path to growth

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-Dayita Kanodia, Executive finserv@vinodkothari.com

“Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese.” – Chris Skinner[1]

Unprecedented growth of the sector

From pawnbrokers lending money in exchange for collateral to the use of sophisticated technologies to carry out credit underwriting, the landscape of lending business has evolved significantly in the last century. Today, it is hard to find a financial institution which is carrying on business without digitising any aspect of its lending process. With rapid advancements in cloud computing, artificial intelligence, and blockchain, as well as faster and more affordable internet connectivity, it is safe to say that the brick and mortar model for lending business will soon be a matter of the past.

The Global Digital Lending Market is valued at USD 11.33 Billion in the year 2022 and is anticipated to reach a value of USD 30.77 Billion by the year 2030. [2]

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IS THIS LENDING DIGITAL OR PHYSICAL?

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Anita Baid in conversation with Vinod Kothari

Live on YouTube – 20th April | 05:00 p.m. – https://www.youtube.com/live/89PtYjU5S3Y?feature=share

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2022 in retrospect: Regulatory activity in the financial sector

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– Vinod Kothari | finserv@vinodkothari.com

It has been a brisk year in terms of activity – a busy regulator kept  all regulated entities busier. This year marked the initiation of a new SBR framework for NBFCs – hence there was a lot of buzz in terms of understanding the new regulatory framework. The names of 16 Upper layer entities were declared by the RBI – consisting of 5 HFCs, 10 NBFC-ICCs, one CIC[1]. As is the design, UL entities are treated at par with banks in terms of regulatory intensity –hence, there is a LEF (large exposure framework), differential provisioning norms in case of  standard assets, CET-1 capital requirement, mandatory listing etc.

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Full Day Workshop on Partnering in lending (Mumbai)

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Loan sourcing, co-lending, transfer of loans, securitisation

Please note that registration for the workshop is closed, thank you for the overwhelming support! Do express your interests by filling this form: https://forms.gle/qoUwx99aV1acELSp6
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Details of our workshop in Bengaluru: https://vinodkothari.com/2022/12/full-day-workshop-on-partnering-in-lending/

Our recent write-ups on the topic:

Financial Services- https://vinodkothari.com/category/financial-services

Digital Lending- https://vinodkothari.com/?s=digital+lending

Full Day Workshop on Partnering in lending:

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Loan sourcing, co-lending, transfer of loans, securitisation

Register here: https://forms.gle/Nq13Qf58uH3qge9D7

Venue: The Chancery Hotel, 10/6, Lavelle Road, Shanthala Nagar, Ashok Nagar, Bengaluru 560001 (location)

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Our upcoming workshops: https://vinodkothari.com/workshop-training/

Our resources:

Financial Services- https://vinodkothari.com/category/financial-services

Digital Lending- https://vinodkothari.com/?s=digital+lending

Reintroduction of the Data Protection Bill: Analysing the Implications for FinTech

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– Financial Services Division (finserv@vinodkothari.com)

Background

The Ministry of Electronics and Information Technology (MeitY) introduced the revised draft of the Digital Personal Data Protection Bill, 2022[1] (‘Bill’) on November 18, 2022 for public comments. The Bill is intended to be technology and sector-agnostic and hence, shall serve as a broad guide for digital data protection across all sectors. It is expected that sector-specific regulators shall develop regulations based on the legislation passed based on the said Bill.

In this write-up, we intend to cover the broad prescriptions of the said draft Bill and their impact on the fintech industry.

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Structured Default Guarantees

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Analysing prevalent structures and their capital treatment

– Qasim Saif, Senior Manager | qasim@vinodkothari.com

The term that has been grabbing limelight in the world of finance, specifically for non-banking finance would be First Loss Default Guarantees (FLDGs). The growth of the fintech sector in India may be chiefly credited for making FLDGs as the latest buzzword. However, guarantees are not a new innovation; it has been commonly used in the finance sector since ages.

We are organising a Workshop on Emerging Regulatory Framework for NBFCs and digital lending on 19th, 20th and 21st September 2022. See details here – https://vinodkothari.com/2022/09/workshop-emerging-regulatory-framework-for-nbfcs/
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Workshop on Emerging Regulatory Framework for NBFCs and digital lending

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Register here: https://forms.gle/D7QTKbPDcZn3AP7y6
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Our resources on the topics:

Digital lending: Footnote prescriptions heavier than the headlines

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Time to re-think on co-lending transactions and FLDG arrangements

– Anita Baid, Vice President | anita@vinodkothari.com

The August 10, 2022 Press Release of the RBI on implementation of the recommendations of the Working group on Digital Lending was a major setback for the existing business model of several fintech entities and digital lenders. Through the Press Release, RBI had sought to implement the recommendations and suggestions of the WG on digital lending. [1]

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FAQs on Digital Lending Regulations

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Updated on February 15, 2023

The RBI had constituted a Working Group on digital lending including lending through online platforms and mobile apps on January 13, 2021[1]. The Working Group (‘WG’) submitted its report and the same was published by the RBI on November 18, 2021[2] (‘Report’).

On August 10, 2022, the RBI issued a press release on implementation of the recommendations of the WG. The press release contains three annexures that are either applicable immediately or may be applicable in due course. Through the press release, RBI seeks to implement the recommendations and suggestions of the WG on digital lending.

Further, the RBI has issued the Guidelines on Digital Lending on September 2, 2022 (‘Guidelines’). The text of the Guidelines is largely similar to the press release, with certain modifications and insertions of footnotes.

We have developed a set of FAQs on the press release and updated the same based on the Guidelines issued by RBI, where we intend to answer some of the critical questions relating to the digital lending regulatory framework.

The following FAQs have also been updated in line with the RBI FAQs dated February 14, 2023.

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