Operation of Pre-sanctioned credit lines at Banks through UPI
Eliza Bahrainwala, Executive | eliza@vinodkothari.com
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Open in new tab Defaulters at will, and defaulters of size: RBI proposes new Directions
Middle and Upper Layer NBFCs also part of the system
Team Finserv, finserv@vinodkothari.com (updated as on March 30,2024)
Introduction
The Reserve Bank of India on September 21, 2023 has issued the Draft Master Directions on Treatment of Wilful Defaulters and Large Defaulters (‘Proposed Directions’). The Directions, when finalized, will replace the existing Master circulars (referred below). The draft Directions are largely consolidating in nature, with some significant differences. Importantly, NBFCs of middle and upper layer have been brought into the framework, and additionally, as was clear from the recent circular on compromise/settlements, the tag of willful defaulter may be removed if the borrower does a compromise settlement with the lender. However, a mere sale of the loan will not cause removal of the tag, as the tag will pass on to the buyer. The draft Directions also assimilate the provisions about large defaulters, which was earlier a CIC filing requirement, and make it a part of these Directions.
Read more →Security Interest: Meaning, forms, registration, enforcement, and effects of non-registration
-Team Vinod Kothari and Company | resolution@vinodkothari.com
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Amended KYC norms: A move towards faceless KYC
RBI amends KYC norms to permit faceless KYC; beneficial owner of 10% or more to be subjected to KYC
– Anita Baid, Vice President | anita@vinodkothari.com
Recognising the increasing trend towards faceless lending, and the use of technology for customer due diligence, the RBI has made much-needed changes in the KYC process, permitting lenders to avoid any of physical interface with borrowers and rely on documents stored in Digilocker or other e-documents. Amendments, immediately effective, were made to the Master Direction – Know Your Customer (KYC) Direction, 2016 vide a notification dated April 28, 2023.
| Watch our YouTube video on the topic here – https://www.youtube.com/live/Ewi4FW8G0xk?feature=share |
The amendments in the KYC Directions are applicable to every entity regulated by the RBI, including but not limited to banks, cooperative banks, payment system providers, AIFIs as well as NBFCs intend to achieve the following:
Read more →Classification of fraud and reporting
Should borrower be given an opportunity of being heard?
-Rhea Shah, Executive | rhea@vinodkothari.com
Background
A recent ruling of the Supreme Court placed emphasis on the classification of an account as fraudulent and the consequences thereof. The ruling is in favour of incorporating the principles of natural justice during the process of declaring an account as fraudulent.
Fraud classification by banks and NBFCs is essentially guided by Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs[1] and the Master Direction – Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016[2], respectively (‘Fraud Directions’). However, there has been a certain extent of ambiguity as to the procedural aspects of the classification. While the basic purpose of such classification remains to ensure the early detection and reporting of a fraudulent transaction, it also entails significance in implementing a procedure that is fast and robust for the RBI to disseminate information regarding fraudulent borrowers and related parties.
Read more →Commercial Real Estate exposures: Lending risks and Regulatory focus
– Team Finserv | finserv@vinodkothari.com
Background
Lending backed by value or liquidity of certain types of assets is regarded as sensitive sector exposure and calls for a special focus of the lending institution from a risk management perspective. Regulators view it with attention, for reasons of the vulnerability of these exposures to cyclical price changes, as also the contribution of such lending to asset bubbles and systemic instability. Capital market and commercial real estate lending are two instances. Lending to capital markets (equity shares) may cause an excess flow of liquidity into stocks, thereby creating an asset bubble. When the bubble bursts, lending goes bad, and of course with several other systemic implications. Same is the case with commercial real estate. Flow of easy or cheap money causes investor interest in CRE to build up, thereby causing prices to spiral up, resulting into asset bubble.
It is for this reason that CRE exposures have always been seen by regulators with concern.
Read more →The Dos and Don’ts of Penal Charges
RBI to release guidelines on penal charges
– Tejasvi Thakkar, Executive | finserv@vinodkothari.com
Introduction
The Reserve Bank of India (‘RBI’) announced various policy measures in its Statement on Developmental and Regulatory Policies dated February 08, 2023, which includes introduction of guidelines for regulating the penal charges levied by financial institutions in case of delay or default in repayment of loans or where there is a non-compliance of ‘material’ terms and conditions. RBI observed that some of the financial institutions were levying unreasonable penal charges. It has time and again been RBI’s concern that financial institutions levy excessive charges under the garb of different names such as penal charges, penal interests, legal charges, notice charges, levy charges etc. A large number of customer grievances with respect to excessive penal charges and divergent practices have influenced the regulator to think on these lines.
Read more →11th Securitisation Summit | Sponsorship Proposal
Details of the 11th Securitisation Summit – https://vinodkothari.com/secsummit/
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Post-event report of the 10th Securitisation Summit – https://vinodkothari.com/2022/05/key-takeaways-10th-securitisation-summit-may-27-2022-the-lalit-mumbai/
For queries regarding participation, partnership or anything else, reach us at: summit@vinodkothari.com / fintrain@vinodkothari.com
Full Day Workshop on Partnering in lending (Mumbai)
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
The sale of season: Holding period requirements for assignments and securitisation
– Team Finserv | finserv@vinodkothari.com
Any sale or assignment or transfer, including securitisation, of loans is subject to a minimum seasoning with the originator. Under the extant regulatory provisions, such requirement is referred to as ‘Minimum Holding Period’ (MHP), which means the minimum period for which the originator should have held the loan exposures before the same is transferred to the transferee or Special Purpose Entity (SPE), as the case may be. This serves several purposes: that the loan was not originated for sale, the originator has had some equity in the loans, and that there is a benefit of hindsight of performance.
MHP requirements have always been a part of the regulations in India. However, on December 5, 2022, the Reserve Bank of India (RBI) made certain amendments to the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021[1] (‘TLE Directions’) as well as the Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021[2] (‘SSA Directions’). Among the other changes, there was a change in the MHP provisions; this change may have a significant impact on future transactions.
This write-up intends to clarify the position with respect to the computation of MHP for different types of loans under TLE Directions as well as SSA Directions.
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