The Reserve Bank of India (RBI) marked its 90th year on April 1, 2024, also its another year of heightened regulatory activity. From tightening actions on Paytm and Kotak Mahindra Bank to introducing the SRO framework in May, announcing Unified Lending Interface (ULI) in August, and enhancing P2P lending norms, here is a round up of key policy actions and developments this year:
Crackdown on Paytm
The RBI imposed severe restrictions on Paytm Payments Bank (PPBL) starting February 29, 2024. Key issues included persistent non-compliance with regulatory standards and supervisory concerns. As a result, PPBL was prohibited from accepting fresh deposits or conducting credit transactions, Customers could only withdraw or utilise their existing balances, and Merchant transactions through Paytm’s ecosystem were significantly disrupted, forcing merchants to seek alternative payment options.
Additionally, the RBI imposed restrictions on Kotak Mahindra Bank due to deficiencies in its IT systems, which caused repeated outages. It also banned IIFL Finance from offering gold loans, a restriction lifted in September, and removed a seven-month ban on JM Financial Services financing against shares and debentures.
P2P Lending: Enhanced Transparency and Risk Management
In August, the RBI tightened regulations for P2P lending platforms to boost transparency and mitigate risks. Platforms can no longer offer credit guarantees, sell insurance as credit enhancements, or link fees to repayments. Lenders must bear the risk of losses, with total exposure capped at Rs 50 lakh, and loans over Rs 10 lakh requiring a net worth certificate.
All transactions must go through escrow accounts, prohibiting cash transfers. Platforms must disclose NPAs, lender losses, and ensure transparency in loan mapping and approvals. Promoting products with assured returns or liquidity features is also banned.
SRO Framework for FinTechs, FACE becomes the first one
The Reserve Bank of India (RBI) in May released the final framework for recognising self-regulatory organisations in the financial technology sector (SRO-FT), encouraging entities to have a representative membership from the fintech sector.
The Reserve Bank of India (RBI) announced that the Fintech Association for Consumer Empowerment (FACE) has been recognised as the first Self-Regulating Organisation in the FinTech sector (SRO-FT).
Unified Lending Interface (ULI)
In late August, the central bank announced that it will launch the Unified Lending Interface (ULI) nationwide to transform India’s lending ecosystem, much like how UPI revolutionised payments, announced Governor Shaktikanta Das.
ULI will provide lenders with consent-based digital access to customers’ financial and non-financial data, including land records, to enable seamless credit, particularly for farmers and MSMEs. By consolidating data from diverse sources such as government records and banks, ULI aims to streamline credit appraisal, reducing delays for smaller and rural borrowers. RBI Governor Shaktikanta Das highlighted ULI as part of India’s evolving digital infrastructure, alongside JAM (Jan Dhan, Aadhaar, and mobile) and UPI, which he termed the “new trinity” for advancing digital banking and inclusion.
Introduction of CBDC for Non-Bank Operators
The Reserve Bank of India (RBI) in April proposed expanding the accessibility of its retail Central Bank Digital Currency (CBDC-R) by allowing non-bank payment system operators, such as PhonePe and Google Pay, to offer CBDC wallets.
This move aims to enhance user access, expand payment options, and test system resilience for multi-channel transactions.
Both the Wholesale and Retail segments of the CBDC pilot are currently underway, with an increasing number of banks being brought into the initiative.
RBI supersedes Abhyudaya Bank’s Board
In a decisive action, the Reserve Bank of India (RBI) superseded the board of directors of Abhyudaya Bank on November 24, 2023, citing governance and operational lapses. The move followed a series of regulatory interventions, including a Supervisory Action Framework in May 2021, the appointment of an additional director in July 2021, and loan sanctions restrictions in 2022.
The Bombay High Court upheld the RBI’s authority under Section 36AAA of the Banking Regulation Act, dismissing the former board members’ plea challenging the decision.
In addition to these measures, the RBI introduced Finquiry, a centralised platform to streamline dispute resolution across banks, NBFCs, and payment aggregators, enhancing consumer experience and systemic oversight. It also unveiled a roadmap for integrating ESG factors into risk assessments by banks and NBFCs.
Other initiatives included a revamped currency swap framework for SAARC nations, increased transaction caps for UPI Lite users, the PRAVAAH portal to streamline government securities trading, and consolidated reporting norms to ease compliance and improve data governance.
