The Reserve Bank of India (RBI) has announced strict regulations for microfinance institutions (MFIs) providing loans up to INR 50,000. This move comes in response to the increasing risk exposure of such small-scale loans and aims to bring more control over the sector. The first fintech company to come under the purview of these regulations is Paytm.
In addition to Paytm, several other fintech companies have been contributing to the surge in small-ticket loans, leading to concerns about excessive lending. The Reserve Bank of India, in its recent announcement, emphasized the need for regulating and controlling the growth of such loans to individuals. The central bank has also mentioned that it has observed an unhealthy concentration in the lending practices of MFIs, particularly in loans below INR 10,000.
The RBI has been actively monitoring and controlling the risk exposure of banks and other financial institutions in the lending sector. The recent increase in the risk weightage for small-ticket loans without collateral is a step towards ensuring better risk management. This move is expected to reduce the excessive growth of such loans and discourage banks from providing loans without adequate risk assessment.
While the RBI is taking measures to control small-ticket loans, it is also encouraging responsible lending practices. The central bank believes that stringent regulations will help in maintaining a healthy growth rate for fintech companies and prevent the build-up of excessive risk in the financial system.
Additionally, the RBI governor, Shaktikanta Das, has hinted at the possibility of introducing a repository system for fintech loans. This repository system is expected to come into effect in 2024, requiring fintech companies to submit necessary details and data to the regulator. The move aims to enhance transparency and accountability in the microfinance sector and facilitate better regulation.
In summary, the RBI’s recent measures indicate a proactive approach to addresses the challenges posed by the rapid growth of small-ticket loans provided by fintech companies. The focus is on ensuring responsible lending practices, maintaining a healthy growth rate, and preventing undue risk accumulation in the financial system.
