Introducing Financial Services on ONDC: Opportunities & Challenges for Digital Lenders
– Shreshtha Barman | finserv@vinodkothari.com
Read more →Digital Personal Data Protection Bill 2023: Analysing the Impact on Digital Lenders
– Subhojit Shome, Assistant Manager | subhojit@vinodkothari.com
Click here to view our: Consultancy and advisory services on Digital Personal Data Protection Act, 2023
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Open in new tab Inter-operable regulatory sandbox: A playground for fintechs ?
– Dayita Kanodia, Executive | finserv@vinodkothari.com
A regulatory sandbox allows live testing of innovative products/services under regulatory supervision and with regulatory relaxations. This in turn allows regulators to design evidence-based and innovation-friendly regulations.
An Inter-Operable Regulatory Sandbox or IoRS as defined by both RBI and SEBI is therefore a mechanism to facilitate testing of innovative hybrid financial products / services falling within the regulatory ambit of more than one financial sector regulator.
Read more →FAQs on Default Loss Guarantee in Digital Lending
An understanding of the Guidelines issued by RBI
Team Finserv | finserv@vinodkothari.com
On September 02, 2022, the RBI issued the “Guidelines on Digital Lending” (“DL Guidelines”), which had essentially put a bar on “Loss sharing/ structured default guarantee arrangements” such as First Loss Default Guarantees, likening their nature to that of “synthetic securitisation” as defined under the Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 (“SSA Directions”). This caused a disruption in the digital lending industry as most of the arrangements ran on some form of loss-sharing arrangement. (Refer to our FAQs on the Digital Lending Guidelines here)
In its Statement on Developmental and Regulatory Policies dated June 8, 2023, the RBI announced its intention to issue a regulatory framework for permitting Default Loss Guarantee arrangements in Digital Lending[1]. The same day, the Guidelines on Default Loss Guarantee (DLG) in Digital Lending have been issued by the regulator (‘DLG Guidelines’).
We have developed a set of FAQs on the DLG Guidelines, where we intend to answer some of the critical questions relating to the default guarantee arrangements.
Read more →RBI to release guidelines to permit default guarantees
The evolution of a concept, from its inception to being prohibited, and ultimately establishing a regulatory framework to allow its practice
– Anita Baid (finserv@vinodkothari.com)
The concept of First Loss Default Guarantees (FLDGs) in the financial industry has experienced a remarkable journey, marked by its inception, subsequent prohibition, and eventually being on the verge of a resurgence with the introduction of a regulatory framework. It had gained significant attention in the realm of fintech industry, whose remarkable expansion in India is largely responsible for propelling FLDGs. Nevertheless, it is essential to note that guarantees are not a novel concept; they have been widely employed in the financial sector for a considerable period of time. (Our article on ‘Lending without risk and risk without lending’ can be read here)
In its Statement on Developmental and Regulatory Policies dated June 8, 2023, the RBI has announced its intention to issue a regulatory framework for permitting Default Loss Guarantee arrangements in Digital Lending. This article delves into the intriguing evolution of Structured Default Guarantees, examining their rise, fall, and subsequent rebirth, shedding light on the regulatory landscape that has shaped their existence.
Read more →Crowdfunding platforms – risks and concerns in the Indian context
Timothy Lopes, Manager
Introduction
Crowdfunding as a concept has been in the limelight for quite some time now. Globally there are several crowdfunding platforms that exist. These crowdfunding platforms essentially allow almost anybody to raise funds for any cause, ideas or business ventures. Interestingly, the first online crowdfunding platform was launched back in 2001[1].
However, with the advent of online crowdfunding platforms also comes the inherent risks associated with it. Through this article, the author aims to highlight the inherent risks associated with crowdfunding along with the legal permissibility and restraints in India.
Read more →Cryptocurrency – A Cautionary Tale for India
Recent Events in the Crypto-world and a Need for Regulatory Oversight
– Subhojit Shome (subhojit@vinodkothari.com)
Introduction
There are two recent events in the world of crypto that warranted this article – the first one, in order of chronology, fundamentally altered the way that a blockchain (the underlying ledger) for cryptocurrency validates transactions while the second exposed how a cryptocurrency, without underlying value, can be used to window dress a balance sheet and lure in investors.
The second incident, of course, refers to the FTX debacle that has received global media coverage and continues to grab headlines. The first event, Ethereum moving to ‘proof of stake’ consensus mechanism, however, may be a more obscure event to the public eye and likely to have caught the attention of only the hardcore crypto enthusiast, fintech departments of financial institutions and the financial stability divisions of financial market regulators and ministries.
This article, to all intents and purposes, is a ‘cautionary tale’ where we use these two events to explore how cryptocurrency, whether deliberately or inadvertently, may build a house of cards and there is an urgent imperative that regulators look beyond PML/ CFT issues, the ‘usual suspects’ when it comes to crypto, and delve into issues surrounding investor protection and market surveillance.
Read more →Reintroduction of the Data Protection Bill: Analysing the Implications for FinTech
– 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.
Read more →Structured Default Guarantees
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/ |
The future of Loan-loaded Prepaid Payment Instruments
Financial Services Division | finserv@vinodkothari.com
The latest communication from the Reserve Bank of India (‘RBI’), barring issuers of prepaid payment instruments (PPIs) from having the same loaded by credit lines, has created a substantial flutter in the financial sector, particularly among the Fintech lenders. Based on the feedback received from market participants it seems that the RBI has been trying to remove any regulatory arbitrage that a non-bank PPI issuer may have as compared to a bank. Considering the gravity of the matter even the Payment Council of India has approached the Government of India to intervene in this matter[1]. There are reports[2] that many of the issuers of PPIs have reportedly stopped issuing PPIs post receiving the RBI circular.
The trigger for all this is a June 20, 2022 communication from the RBI, addressed to certain NBFCs and Fintech lenders, who have been extending credit facilities for loading prepaid cards, stating that prepaid payment instruments (PPIs) must not be loaded through credit lines. The aforesaid communication has raised questions on the existing business model of several fintech entities and threatens their existence. The relevant extract of the said communication states that:
“A reference is invited to the provisions contained in the paragraph 7.5 of the Master Direction on PPI (PPI-MD) dated August 27, 2021 (updated as on November 12, 2021) – “PPIs shall be permitted to be loaded /reloaded by cash debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only”
The PPI-MD does not permit loading of PPIs from credit lines. Such practices, if followed, should be stopped immediately. Any non-compliance in this regard may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007”
Read more →