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RBI panel pitches for strict regulation of digital loan apps

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The RBI may provide general guidance and recognise such an SRO in respect of its regulated entities and their outsourced agents.The RBI may provide general guidance and recognise such an SRO in respect of its regulated entities and their outsourced agents.

A working group set up by the Reserve Bank of India (RBI) to review working of digital lending has made a case for stronger regulation of loan apps in its report. The recommendations range from subjecting digital lending apps (DLAs) to a verification process by a nodal agency to a separate legislation to prevent illegal digital lending activities.

The report said there were approximately 1,100 lending apps available for Indian Android users across over 80 application stores, of which 600 were illegal.

The group was constituted amid widespread complaints of harassment and unfair recovery practices by a host of lending apps which are virtually unregulated. While acknowledging the importance and role of technological advancements in the growth of the credit ecosystem, the report of the group, headed by RBI ED Jayant Kumar Dash, highlighted the risks arising out of recent developments. “… there have been unintended consequences on account of greater reliance on third-party lending service providers mis-selling to unsuspecting customers, concerns over breach of data privacy, unethical business conduct and illegitimate operations,” the report said.

One of the near-term recommendations, implementable in the next one year, is that a nodal agency be set up to primarily verify the technological credentials of DLAs of the balance sheet lenders and lending service providers (LSPs). It will also maintain a public register of the verified apps on its website. Styled as Digital India Trust Agency (DIGITA), the institution would be set up in consultation with stakeholders including regulators, industry participants, representative bodies and the government, the report said.

The report recommends that a self-regulatory organisation (SRO) covering DLAs and LSPs may be set up. The RBI may provide general guidance and recognise such an SRO in respect of its regulated entities and their outsourced agents. The government may also like to take similar action for digital lending business carried out by entities which are not regulated entities of the RBI.

Analogous to the central law on the banning of unregulated deposit schemes, the government could consider bringing through a legislation styled as “the Banning of Unregulated Lending Activities (BULA) Act” which would cover all entities not regulated and authorised by the RBI for undertaking lending business or entities not registered under any other law for specifically undertaking public lending business. “The recommended legislation may also define ‘public lending’ to bring clarity,” the group said in its report.

The group recommended that all loan servicing and repayments should be executed directly in a bank account of the balance sheet lender and disbursements should always be made into the bank account of the borrower.

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SBI, Adani Capital sign pact for co-lending to farmers

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The Reserve Bank of India (RBI) had issued guidelines on co-lending scheme for banks and NBFCs for priority-sector lending, to improve credit flow towards underserved sectors of economy, the bank said in a release, adding that the model aims to give the borrower the best interest rate and better reach.The Reserve Bank of India (RBI) had issued guidelines on co-lending scheme for banks and NBFCs for priority-sector lending, to improve credit flow towards underserved sectors of economy, the bank said in a release, adding that the model aims to give the borrower the best interest rate and better reach.

State Bank of India (SBI) on Thursday signed an agreement with Adani Capital, the non-banking finance company (NBFC) arm of the Adani Group, for co-lending to farmers for purchase of tractors and farm implement.

“This partnership shall help SBI to expand customer base as well as connect with the underserved farming segment of the country and further contribute towards the growth of India’s farm economy. We will continue to work with more NBFCs in order to reach out to maximum customers in far flung areas and provide last mile banking services,” said SBI chairman Dinesh Khara.

The Reserve Bank of India (RBI) had issued guidelines on co-lending scheme for banks and NBFCs for priority-sector lending, to improve credit flow towards underserved sectors of economy, the bank said in a release, adding that the model aims to give the borrower the best interest rate and better reach.

Registered in 2017, Adani Capital is a non-deposit taking systemically important NBFC with total assets under management (AUM) of Rs 1,292 crore as on March 31. The NBFC had 28,000 customers spread across 63 branches in 6 states including Maharashtra, Gujarat, Rajasthan, Karnataka, Tamil Nadu and Uttar Pradesh.

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Srei: Administrator admits Rs 22,910 cr claims from banks

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Citing governance concerns and defaults by the two NBFCs in their various payment obligations, the RBI superseded their boards and appointed Sharma, former chief general manager, Bank of Baroda, as the administrator.Citing governance concerns and defaults by the two NBFCs in their various payment obligations, the RBI superseded their boards and appointed Sharma, former chief general manager, Bank of Baroda, as the administrator.

The Reserve Bank of India-appointed administrator has admitted total claims of Rs 22,910.49 crore of commercial banks’ on Srei Infrastructure Finance and its wholly-owned subsidiary Srei Equipment Finance, against the combined amount of Rs 25,115.29 crore claimed by them.

Administrator Rajneesh Sharma has rejected claims of around Rs 1,604.63 crore by the commercial banks, while Rs 601.37 crore is under verification as of November 19.

The Kolkata bench of the National Company Law Tribunal (NCLT) on October 8 gave its approval to start insolvency proceedings against Srei Infrastructure Finance and Srei Equipment Finance after the Reserve Bank of India (RBI) filed insolvency applications against them.

The central bank filed the insolvency petitions just after the Bombay High Court dismissed a writ petition filed by two promoters of Srei group challenging the RBI’s decision to supersede the boards of these companies and initiate insolvency proceedings against them.

The second meeting of the committee of creditors of Srei Equipment Finance was convened and conducted on Monday.

At the meeting, the administrator apprised the committee of creditors of the current status of the Corporate Insolvency Resolution Process (CIRP), the composition of the committee based on the claims received, and the way forward on the resolution strategy — including group resolution and timelines — according to a stock exchange filing by Srei Infrastructure Finance.

On a request made by public sector lender Uco Bank, the RBI had filed applications for initiation of the CIRP under the Insolvency and Bankruptcy Code against the two companies through Sanjay Ginodia, senior partner of R Ginodia & Co.

Citing governance concerns and defaults by the two NBFCs in their various payment obligations, the RBI superseded their boards and appointed Sharma, former chief general manager, Bank of Baroda, as the administrator.

The central bank has also constituted a three-member advisory committee to assist the administrator. The committee members are R Subramaniakumar, former MD & CEO, Indian Overseas Bank; T Srinivasaraghavan, former MD, Sundaram Finance; and Farokh N Subedar, former COO and company secretary, Tata Sons.

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PSB privatisation: New Bill may provide for 26% minimum govt holding

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Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.

The Banking Laws (Amendment) Bill, 2021, which will be introduced in the Winter Session of Parliament starting November 29, will likely propose that the minimum government holding in public sector banks (PSBs) be trimmed to 26% from 51%, an official source said.

The move is aimed at facilitating the privatisation of two PSBs, in sync with the announcement in the Budget for 2021-22. On Wednesday, shares of Indian Overseas Bank (IOB) and Central Bank of India rallied, amid speculations that the government had made a decision to privatise these two lenders, as suggested by the Niti Aayog. However, the Centre is yet to formally name the privatisation candidates.

While the draft Bill provides for the lower shareholding, a final call will be taken by the Cabinet, which will clear the Bill before it can be introduced in Parliament, added the source.

“(However) If it’s found, after consultations with investors, that they are not interested unless the government sells its entire stake in the select PSBs, the government is open to consider complete privatisation as well. But initially, it may opt for retaining a 26% stake,” said another source who is privy to discussions.

Analysts fear any government proposal to retain 26% stake in the PSBs may not go down well with potential suitors. For instance, the government was forced to put its entire stake in state-run Air India on the block after its initial plan to hold at least 26% in the national carrier didn’t elicit any response from investors.

The new Bill proposes to “effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks”, according to the list of legislative business for the winter session of Parliament.

These laws had led to the nationalisation of banks, so relevant provisions of these laws have to be changed to pave the way for the privatisation.

Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.

Already, Parliament had in its last session cleared a Bill to facilitate the privatisation of state-run general insurance companies by removing the requirement of the central government to hold at least 51% stake in an insurer.

Niti Aayog has already recommended the sell-off of IOB and Central Bank of India to the core group of secretaries on disinvestment, headed by the Cabinet Secretary. This core group will send its recommendation to the alternative mechanism (AM), headed by the finance minister, for its approval. Finally, it will be cleared by the Cabinet.

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