Fintechs to seek clarity on FLDG norms, regulator likely to issue FAQ

MUMBAI Fintech Associations, on behalf of industry players, are expected to approach Reserve Bank of India (RBI) Certain Clarifications regarding the Virtual Loss Guarantee (DLG) guidance issued on Thursday.

In response, the regulator is likely to issue a FAQ or guide detailing certain specifications and definitions.

People are still getting it in terms of exactly what it means. It’s the first time these guidelines have come out, so there are some questions. “We will consolidate it and refer to the Reserve Bank of India,” said an industry official. Business line.

The sources said fintech industry lobbyists have asked their members to list areas that may be challenging from an operational or operational perspective and any queries they may have regarding structure and issues related to risk.

Sources said industry bodies are likely to meet next week to discuss these issues and are expected to approach the regulator within 10-15 days.

Some of the initial operational issues that have emerged include ambiguity regarding the handling of NPAs and how they will be accounted for due to differences with the ECL framework. Players also seek to understand the term loan portfolios and the type of groups and different cohorts that can be explored under it.

5% cap on DLG cap

Some players in the industry believe the 5 per cent cap is restrictive but admit the regulator would be wise to be careful given past experience. In turn, these standards will lead to more accuracy in the underwriting models and due diligence of the partners.

The 5 percent cap serves to ensure that partners bring appropriate credit opportunities to regulated entities. In addition, it is in the interest of the industry to create strategic partnerships that earn reasonable remuneration from regulated entities, said Anand Kumar Bajaj, founder, managing director and CEO of PayNearby.

“The Reserve Bank of India notes that entities should price risk appropriately and operate within this framework, thus setting an end to the tolerance range for NPAs,” said Akshay Mehrotra, Co-Founder and CEO of Fibe.

Due to the variety of lenders, players catering to segments with small loan tenures and ticket sizes as low as Rs 2,000 can have higher risks in the underlying portfolios, and that cap may not be enough there. However, these players have the option to manage that through pricing, said one of the sources, adding that these players make up a very small segment of the market given the average ticket size is between €10,000 and €25,000.

“According to the stable credit loss rate of most loan books, the cap is quite reasonable to meet the regulatory objectives of prudent risk management and innovation,” said Sugandh Saxena, CEO of FACE (Fintech Association for Consumer Empowerment), adding that the requirement to publish the DLG details will bring clear market signals. for more efficient models.