India – AKP Banking & Finance Digest- August 12 , 2024.
1. Regulatory Updates
1.1. India
1.1.1. RBI announces key Digital Lending and Payments updates
The Reserve Bank of India (“RBI”) has announced several key regulatory and developmental policy updates. To combat fraudulent claims by digital lending apps about their affiliation with RBI-regulated entities, the RBI will establish a public repository of these apps on its website for customer verification. Additionally, credit institutions will shift to reporting borrower credit information on a fortnightly basis, improving data timeliness. In payment systems, the Unified Payments Interface (“UPI”) tax payment limit will be increased from INR 1 lakh (Indian Rupees One Lakh only) to INR 5 lakh (Indian Rupees Five Lakh only), and “Delegated Payments” will be introduced, allowing users to set transaction limits for others. Furthermore, the cheque truncation system will transition to continuous clearing, reducing the settlement cycle from one day to a few hours, thereby enhancing efficiency and customer experience. RBI
1.1.2. RBI releases draft circular for managing credit model risks
RBI has released a draft circular outlining new regulatory principles for managing model risks in credit. The guidelines mandate regulated entities (“REs”) to establish a comprehensive, board-approved policy for model risk management, covering governance, model development, and validation. Models developed internally or sourced from third parties must be thoroughly documented, validated, and regularly reviewed to ensure robustness and compliance. REs are responsible for the integrity of outsourced models and must facilitate access to supervisory evaluations. The draft aims to enhance the reliability and transparency of credit risk models used in financial decision-making. RBI
1.1.3. RBI mandates fortnightly reporting for credit information
RBI has updated its guidelines for credit institutions and credit information companies. Effective January 1, 2025, credit information must be reported on a fortnightly basis—specifically on the 15th (fifteenth) and the last day of each month. Institutions are required to submit this data within seven days, with credit information companies expected to process it within five days of receipt. This move aims to enhance the accuracy and timeliness of credit information, supporting more informed credit decisions. Institutions not complying will face penalties under the Credit Information Companies (Regulation) Act, 2005. RBI
1.1.4. Monetary Penalties
RBI imposes monetary penalties on the following financial institutions:
| Name of the Financial Institution | Penalty Imposed | Reasons |
| Suvarnayug Sahakari Bank Ltd., Pune, Maharashtra | INR 2,00,000/- (Indian Rupees Two Lakh only) | Contravention of/non-adherence with directions issued by RBI on ‘Know Your Customer (KYC)’. |
| Nidhi Co-operative Bank Ltd., Ahmedabad, Gujarat | INR 50,000/- (Indian Rupees Fifty Thousand only) | Contravention of/non-adherence with directions issued by RBI on ‘Loans and Advances to directors, relatives and firms/concerns in which they are interested’. |
1.2. Vietnam
1.2.1. SBV issues plan to improve digital infrastructure and develop digital economy
State Bank of Vietnam (“SBV”) issues a plan on National Digital Transformation Day of 2024, with the theme of “Improving digital infrastructure and creating digital applications to develop the digital economy – New drivers for economic growth and labor productivity”. The plan includes enhancing public awareness of digital transformation, promoting cashless payments, showcasing an electronic slogan, advancing banking digitalization through AI and blockchain, rewarding exemplary public services, and spreading the event’s message through various communication channels. The State Bank of Vietnam
1.3. Philippines
1.3.1. BSP lifts digital bank licence moratorium, allows up to 10 new entrants
The Bangko Sentral ng Pilipinas (“BSP”) will lift its moratorium on new digital banking licences starting January 01, 2025, permitting up to ten digital banks, including those converting from traditional banks. This move aims to harness the potential of digital banking while managing risks. The BSP will conduct a rigorous licensing process, focusing on innovation, unique offerings, and the ability to reach underserved markets. Bangko Sentral ng Pilipinas
1.3.2. BSP unveils 2024-2029 Financial Services Cyber Resilience Plan
BSP launched the Financial Services Cyber Resilience Plan (FSCRP) at the Philippine International Convention Centre. This plan aims to bolster the cybersecurity of banks and financial institutions against evolving cyber threats. Key components include the integration of the Anti-Financial Scamming Act (AFASA), which enhances information sharing and combats financial crimes. The plan will be rolled out in phases from 2024 to 2029, reflecting the BSP’s commitment to maintaining financial system integrity and public trust. Bangko Sentral ng Pilipinas
2. Trends
2.1. NPCI explores biometric authentication for UPI transactions
The National Payments Corporation of India (“NPCI”) is in talks with startups to implement biometric authentication for UPI transactions, enhancing security by using fingerprint recognition on Android devices and Face ID on iPhones. This move addresses concerns over rising UPI fraud and aligns with RBI’s recent proposal for alternative authentication methods, including biometrics. Initially, both PINs and biometric methods may be used concurrently. Times of India
3. Sector Overview
3.1. NBFCs set for a staggering 17 percent growth in FY25, per CareEdge report
India’s non-banking financial companies (“NBFCs”) are projected to grow by 17 per cent (seventeen per cent) in FY25, driven by the country’s rapid economic expansion, as per the latest report released by CareEdge Ratings. Currently, NBFCs hold a significant 22 per cent (twenty-two per cent) share of the credit market. According to the report, NBFCs have demonstrated strong performance with improved asset quality and reduced leverage. Despite stricter regulatory norms, they have achieved a historic low in net non-performing assets (NNPA) at 1.1 per cent (one point one per cent). Additionally, fintech NBFCs have seen substantial growth, with their Assets Under Management (AUM) increasing from INR 10,262 crore (Indian Rupees Ten Thousand Two Hundred Sixty-Two Crore only) in FY20 to INR 33,676 crore (Indian Rupees Thirty-Three Thousand Six Hundred Seventy-Six Crore only) in FY24. CareEdge Report
3.2. Credit card spending via UPI hits INR 10,000 crores monthly
NPCI announced that credit card spending via UPI has reached INR 10,000 crore (Indian Rupees Ten Thousand Crore only) per month. Credit lines on UPI contribute approximately INR 100 crore (Indian Rupees Hundred Crore only) to INR 200 crore (Indian Rupees Two Hundred Crore only) monthly. While the adoption of credit lines on UPI is still growing, it is expected to scale up over time. He also clarified that Central Bank Digital Currency (CBDC) is designed to complement, not compete with, UPI. Inc42
3.3. RBI governor highlights non-compliance in top-up loans, advises corrective action
In the post-monetary policy press meet dated August 08, 2024, RBI Governor Shaktikanta Das noted that some banks and NBFCs were not adhering to norms regarding the “loan to value” (LTV) ratio and monitoring the end use of funds for top-up loans. He observed that home-equity and top-up housing loans were growing at a “brisk” pace, with regulatory guidelines being ignored by certain entities. The RBI Governor highlighted that top-up loans were also being offered against other collateralized loans, such as gold loans, and advised banks and NBFCs to review and rectify their practices. He emphasized the need for careful monitoring of excess leverage through retail loans, especially those used for consumption, from a macro-prudential perspective. Business Standard
4. Business Updates
4.1. RBI endorses Tata Sons’ restructuring plan, granting waiver for public listing
RBI has reportedly endorsed Tata Sons’ restructuring plan, allowing the conglomerate to avoid the mandatory public listing of its holding company on stock exchanges. This decision represents a significant shift in Tata Sons’ corporate strategy, aligning with RBI’s regulatory framework while sidestepping a stock exchange listing. The restructuring plan, which is already underway, includes a major debt reduction, reflecting Tata Sons’ strong financial manoeuvring. Consequently, Tata Sons will no longer be classified as an NBFC in the ‘upper layer’ (UL) — a category designed for NBFCs with systemic importance that would have necessitated a listing by September 2025, following an October 2021 RBI circular. This circular mandated that identified NBFC-ULs must list within three years, a requirement Tata Sons will now circumvent through its restructuring efforts. Economic Times
4.2. Jio Finance App launches in Paris, facilitates payments at iconic landmarks
Jio Financial Services has launched its JioFinance app in Paris, offering seamless digital payment options for Indian travellers. The app allows users to pay for tickets at the Eiffel Tower and shop at Galeries Lafayette Paris Hausmann. The launch coincides with the Paris Olympics and includes a dedicated experience centre at ‘India House,’ showcasing Indian culture. The JioFinance app features instant UPI payments, digital banking, wallet services, and more, enhancing the financial experience for users. Livemint
Disclaimer
The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.
