1. Regulatory Updates
1.1. India
1.1.1. RBI modifies NBFC-P2P directions amid compliance concerns
The Reserve Bank of India ("RBI") has imposed stricter regulations on peer-to-peer lending platforms following instances of regulatory violations. RBI's new directive prohibits Non-Banking Financial Company ("NBFC") – Peer to Peer Lending ("P2P") platforms from assuming credit risk, offering credit enhancements, or providing guarantees. Platforms are required to ensure that all credit risks are borne solely by the lenders. Furthermore, they must disclose portfolio performance, including non-performing assets (NPAs), and any losses incurred by lenders on their websites. Cross-selling of products is restricted to loan-specific insurance only. The RBI has also introduced a cap of INR 50 lakh (Indian Rupees Fifty Lakhs only) on a lender's aggregate exposure across all P2P platforms, with investments above INR 10 lakh (Indian Rupees Ten Lakhs only) necessitating certification of a minimum net worth of INR 50 lakh (Indian Rupees Fifty Lakhs only) by a Chartered Accountant. Additionally, funds from one lender cannot be used to replace another lender's funds. RBI
1.1.2. RBI notifies revised risk weights for HFCs
RBI has revised the risk weight guidelines for Housing Finance Companies ("HFCs") as per the Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021. To address potential anomalies, the risk-weighted assets for undisbursed housing loans will now be capped at the level for an equivalent disbursed amount. Furthermore, the risk weight for fund-based and non-fund-based exposures to 'Commercial Real Estate-Residential Building' classified as standard will be set at 75 per cent (seventy-five per cent only). For exposures not classified as standard, the risk weight will be 100 per cent (one hundred per cent only), aligning with the category 'Other Assets (Others)'. RBI
1.1.3. RBI issues revised regulatory framework for HFCs
RBI has notified updates to the regulatory framework for HFCs, effective January 01, 2025, to harmonise regulations with those applicable to NBFCs. Key changes include increasing the minimum liquid asset requirement for deposit-taking HFCs from 13 per cent (thirteen per cent only) to 15 per cent (fifteen per cent only) in a phased manner, aligning safe custody regulations with those for NBFCs, and revising public deposit parameters. Additionally, HFCs will now be subject to uniform deposit acceptance regulations, credit rating requirements, and restrictions on investments. Updated guidelines also cover participation in derivatives markets, issuance of co-branded credit cards, and technical specifications for the account aggregator ecosystem. RBI
1.1.4. Monetary Penalties
RBI imposes monetary penalties on the following financial institutions:
| Name of the Financial Institution | Penalty Imposed | Reasons |
|---|---|---|
| Nido Home Finance Limited | INR 5,00,000/- (Indian Rupees Five Lakh only) | Contravention of/non-adherence with directions issued by RBI on 'Co-Lending by Banks and NBFCs to Priority Sector'. |
| CSB Bank Ltd. | INR 1,86,80,000/- (Indian Rupees One Crore, Eighty Six Lakh and Eighty Thousand only) | Contravention of/non-adherence with directions issued by RBI on 'Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks' and 'Master Circular on Branch Authorisation'. |
| Ashoka Viniyoga Limited | INR 3,10,000/- (Indian Rupees Three Lakh Ten Thousand only) | Contravention of/non-adherence with directions 'Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016' issued by RBI on 'Governance Issues'. |
| Union Bank of India | INR 1,06,40,000/- (Indian Rupees One crore, Six lakh and Forty thousand only) | Contravention of/non-adherence with directions issued by RBI on 'Creation of a Central Repository of Large Common Exposures-Across Banks' and 'Know Your Customer (KYC)'. |
| Muthoot Housing Finance Company Limited | INR 5,00,000/- (Indian Rupees Five Lakh only) | Contravention of/non-adherence with directions issued by RBI on 'Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021'. |
| Poonawalla Fincorp Limited, Pune, Maharashtra | INR 10,00,000/- (Indian Rupees Ten Lakh only) | Contravention of/non-adherence with directions issued by RBI on 'Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016', relating to 'Fair Practices Code for NBFCs'. |
| Hinduja Leyland Finance Limited | INR 4,90,000/- (Indian Rupees Four Lakh Ninety Thousand only) | Contravention of/non-adherence with directions issued by RBI on Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016. |
| Bank of Maharashtra | INR 1,27,20,000/- (Indian Rupees One Crore Twenty Seven Lakh and Twenty Thousand only) | Contravention of/non-adherence with directions issued by RBI on 'Loan System for Delivery of Bank Credit', 'Cyber Security Framework in Banks' and 'Know Your Customer'. |
1.2. Bangladesh
1.2.1. BB limits daily cash withdrawals to BDT 3 Lakh for security
Bangladesh Bank ("BB") has set a daily cash withdrawal limit of BDT 3 lakh (Bangladeshi Taka Three Lakh only) per account to enhance security and prevent potential misuse. The new rule communicated to banks' top executives via SMS, is effective immediately and will remain in place until further notice. While cash withdrawals are capped, customers can still transfer funds between accounts and conduct digital transactions. The measure comes amid increased pressure for cash withdrawals following recent political changes aimed at mitigating risks related to illegal activities and terrorism. Daily Observer
1.3. Philippines
1.3.1. BSP cuts rate for first time in nearly four years
The Bangko Sentral ng Pilipinas ("BSP") has reduced its benchmark overnight reverse repurchase rate by 25 basis points to 6.25 per cent (six point two five per cent), and its benchmark lending rate to 6.75 per cent (six point seven five per cent). This marks the first rate cut since November 2020. Governor Eli Remolona stated that the decision aimed to support economic growth amid rising inflation and modest domestic performance. Bangko Sentral ng Pilipinas
1.3.2. BSP issues new regulatory framework for merchant payment acceptance
BSP introduced Circular No. 1198, establishing a regulatory framework for Merchant Payment Acceptance Activities ("MPAA"). The framework aims to set standards for safeguarding customer funds and protecting merchants' rights when dealing with payment system operators involved in MPAA. Bangko Sentral ng Pilipinas
2. Trends
2.1. RBI deputy governor proposes risk-based premium for deposit insurance
RBI deputy governor Swaminathan J proposed a risk-based premium for deposit insurance at the International Conference of the International Association of Deposit Insurers - Asia Pacific Regional Committee. He suggested that this approach would ensure that institutions with higher risk profiles contribute more to the insurance fund and encourage better risk management. Swaminathan also stressed the need for deposit insurers to enhance oversight in the increasingly digital financial sector by using supervisory assessments to evaluate technological and operational resilience. RBI
2.2. Wise targets India's USD 32 billion remittance market
Wise Payments Ltd. plans to resume signing up new customers in India for overseas remittances, aiming for a larger share of the country's USD 32 billion (United States Dollar Thirty-Two Billion only) market. After pausing to revamp its infrastructure, the London-based fintech, which recently received a licence from RBI to facilitate larger outbound transfers, will start onboarding customers again in the coming months. Money Control
2.3. Fintechs urged to join National Cyber Fraud Reporting Portal
The Fintech Association of India ("FACE") encourages its members to register on the Citizen Financial Cyber Fraud Reporting and Management System ("CFCFRMS"), a National Cybercrime Reporting Portal component. Members must appoint a nodal officer to address customer complaints and collaborate with law enforcement to combat fraud. This initiative aligns with FACE's bid to become a self-regulatory organisation for fintech lenders, with the RBI soon to announce its decision. CFCFRMS aims to streamline fraud prevention by coordinating efforts among banks, financial intermediaries, and other stakeholders. The rise in digital transactions has increased the risk of cyber fraud, prompting the RBI to establish a Digital Payments Intelligence Platform to enhance fraud detection and response. Business Standard
3. Sector Overview
3.1. RBI's new deposit norms manageable for HFCs, per Crisil Report
Revised RBI deposit norms are unlikely to strain HFCs, according to the Crisil Ratings report. As per the report, most HFCs already comply with the new guidelines, and public deposits make up only a small portion of their borrowings. Key changes as per the revised norms include increasing liquid asset requirements, reducing the maximum tenure of deposits to five years, and capping public deposits at 1.5 (one point five) times net owned funds. Crisil Ratings
3.2. RBI deputy governor urges banks to be cautious with third-party vendors
Speaking at the International Conference of the International Association of Deposit Insurers - Asia Pacific Regional Committee, RBI deputy governor Swaminathan J, advised banks to exercise caution with third-party vendors to avoid vulnerabilities. He pointed out that digital transformation has created a complex network of third-party dependencies, which can lead to severe impacts if any link fails, as seen in a recent global IT services outage. RBI
4. Business Updates
4.1. RBI approves Tata Capital's conversion to NBFC-ICC
RBI has approved Tata Capital Limited's ("TCL") conversion from an NBFC-Core Investment Company ("CIC") to an NBFC-Investment Credit Company (ICC). This approval follows TCL's merger with Tata Cleantech Capital and Tata Capital Financial Services, marking its transition to an operating company and paving the way for a potential listing. Previously, TCL operated as a holding company under the CIC structure. Indian Express
4.2. Bajaj Finance seeks USD 500 million offshore loan
Bajaj Finance Ltd., a leading NBFC in India, plans to borrow up to USD 500 million (United States Dollar Five Hundred Million only) from international markets, negotiating terms with several foreign banks. The loan, likely with a three- to five-year tenor and linked to the Secured Overnight Financing Rate (SOFR), will be raised through the RBI's external commercial borrowing route, with interest capped at 500 (five hundred) basis points above the benchmark. This move comes as stricter RBI regulations on domestic lending prompt shadow financiers to explore global credit markets. Business Standard
4.3. Jocata launches 'One Case Manager' to help financial institutions comply with RBI's circular
Jocata, a leading RegTech partner for the Banking, Financial Services and Insurance (BFSI) industry, has launched its 'One Case Manager' across India, an industry-first solution designed to help financial institutions comply with the RBI's January 2024 circular. This circular mandates regulated entities to adopt a unified dashboard that consolidates all compliance activities in one place. Business Standard
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.