ClearDu Pulse

From the Desk of Chairman - Shailen Mehta

Over the past month, I've had the incredible opportunity to explore and connect with brilliant minds in the field of Debt Resolution. From engaging in discussions to meeting visionary thinkers, it has been an enlightening experience. Topics like PaaS and SaaS in NPA resolution added a layer of sophistication to our conversations, providing a glimpse into the cutting-edge developments shaping the technological landscape in bad debt resolution. This journey has not only expanded my knowledge but also left a lasting impression on the innovative spirit driving progress.

In the midst of these enriching experiences, I couldn't help but reflect on the mission of my venture, ClearDu Fintech. Our focus on NPA resolution and the creation of technology and services tailored for Banks, NBFCs, FinTech’s, and other Financial Institutions aligns seamlessly with the conversations and insights gained during this exploration. The journey has fueled our commitment to driving meaningful technological advancements, and I'm excited about the possibilities that lie ahead in shaping the future of our industry.

RBI governor cautions against lending exuberance, overreliance on fintech models

In a recent discourse, the Reserve Bank of India's Governor, Shaktikanta Das, highlighted the importance of a cautious approach in lending practices, particularly in collaboration with fintech models. A measured strategy was urged upon financial institutions, with an emphasis on the significance of comprehensive risk assessment and a suggestion to avoid excessive reliance on analytics-based lending.

Addressing prevalent concerns in the financial landscape, attention was drawn to the necessity for sustainable credit growth. The call was made for banks and NBFCs to ensure the viability of growth at various levels, expressing reservations about potential risks linked to the elongation of loan tenures, especially with an increased dependence on high-cost, short-term bulk deposits.

The governor underscored the growing importance of NBFCs and their interconnectedness with banks. Concerns were raised about the contagion risk arising from concentrated linkages, along with a recommendation for banks to regularly evaluate their exposure to NBFCs. Additionally, it was suggested that NBFCs diversify their funding sources to reduce reliance on bank funding.

Another area of concern addressed microfinance institutions (MFIs), with advice given for a judicious use of their freedom to price loans. While acknowledging the regulatory removal of pricing caps on small loans provided by NBFC-MFIs, the emphasis was on ensuring transparency in interest rates and steering clear of usurious practices.

Furthermore, a cautionary note was sounded against overreliance on risk models employed by tech-driven entities in lending collaborations. Acknowledging the positive impact of fintech collaboration in introducing innovative products, there was an emphasis on the necessity for robust and periodically tested models. Vigilance was stressed to prevent undue risk build-up due to potential information gaps in these models, which could lead to a dilution of underwriting standards.

The recent decision by the RBI to increase risk weights on consumer loans and loans to NBFCs aligns with this cautious approach, aiming to moderate unsecured credit growth. It was reiterated that these measures are targeted and pre-emptive, reflecting the central bank's commitment to maintaining a stable and sustainable financial environment.

RBI swoops down on unsecured credit, raises risk weights on consumer loans, credit cards

Risk weight on consumer credit has been raised to 125%, while for bank credit to NBFCs, it has been increased by 25 percentage points; for credit card receivables it has been hiked by 25 percentage points. After repeated warnings over unsecured credit this year, the Reserve Bank of India has swooped down on banks and NBFCs' growing exposure to unsecured credit by raising risk weights on consumer credit to 125% from 100%, making such loans?expensive.

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RBI tightens norms for personal loans and credit cards, raises capital requirements

The?Reserve Bank of India?(RBI) on Thursday tightened norms for?personal loans and credit cards in the form of higher capital requirements. The new norms will make personal loans and credit cards costlier and may curb growth in these categories.

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India proposes rules to help alternate investment funds acquire bad loans

India's markets regulator on Tuesday proposed a framework that will help alternate investment funds (AIFs) in acquiring stressed assets, according to a consultation paper uploaded on the regulator's website. Securities and Exchange Board of India (SEBI) in the?paper?said that a new category of AIFs called special situation funds was introduced in 2021.

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