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The Reserve Bank of India (RBI) has issued a circular “Key Facts Statement (KFS) for Loans & Advances” on April 15, 2024 (Circular) to enhance transparency and reduce information asymmetry on retail and MSME term loan products offered by all regulated entities (REs). Here are some of the key points and implications of the circular: 1. As introduced by the Circular, REs shall be required to provide a KFS to all prospective borrowers containing the key information regarding a loan agreement, such as interest rate, fees, charges, tenure, repayment schedule, all-in-cost of the loan etc. At present, KFS is required to in respect of loans by scheduled commercial banks to certain class of borrowers like individuals, digital lending and microfinance loans. In essence, the Circular expands the scope of providing KFS to all REs for helping borrowers in making an informed decision in availing the loan. The KFS shall be in a standardised format and in a language understood by the borrowers. 2.The KFS shall also include a computation sheet of Annual Percentage Rate (APR) i.e, annual all-inclusive cost of credit to the borrower, which shall include all charges levied by the RE. Further, charges recovered by the REs on behalf of third-party service providers, such as insurance, legal, shall also form part of the APR. 3. In addition to the APR, the KFS shall also include the amortisation schedule of the loan over the loan tenor. 4. The KFS shall have a unique proposal number and a validity period of three working days for loans having tenor of seven days or more, and a validity period of one working day for loans having tenor of less than seven days, within which the borrower can accept or reject the loan offer. The validity period shall be the period available to the borrower, after receiving the KFS by the RE, to agree to the terms of the loan. 5. Any fees, charges, etc. that are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan, without explicit consent of the borrower. 6. The KFS shall be explained to the borrower and an acknowledgement shall be obtained that he/she has understood the same. The KFS shall also be included as a summary box in the loan agreement. The Circular shall be applicable for new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers and REs have been directed to put in place the necessary systems and processes to implement the above guidelines at the earliest. In the interim, the relevant provisions on ‘KFS/Factsheet’ under the extant guidelines shall continue to remain applicable. The circular is expected to bring more uniformity and clarity in the disclosure of the terms and conditions of the loan products, and also enable the borrowers to have cost-benefit analysis of loan products offered by different REs in accordance with the Circular. #RBI #bank #retail #msme #loan #borrower #banking

Amidst regulatory stress, banks report significant increase in gold loans https://ift.tt/be5k6D2 Amidst regulatory stress, banks report significant increase in gold loans The central bank has sent warnings to gold-loan lenders against doing business with their fintech partners during the last several months. Banks said that there is no conflict between their fintech partnerships and their gold lending operations. Despite recent regulatory challenges, an examination of a minimum of three banks that have a significant gold loan portfolio shown that they have had strong portfolio growth. Some banks that had relationships with the non-banking financial corporation (NBFC) were impacted by the regulatory hammer placed on IIFL Finance's gold lending operation. Furthermore, according to some media sources, the Reserve Bank of India (RBI) has been warning lenders of gold loans about their dealings with fintech partners. Amidst this, CSB Bank claimed growth of 22% year over year (YoY), with a significant portion of its overall book in gold loans. From Rs 9,694 crore to Rs 11,818 crore last year, the lender's book increased. Another significant participant is South Indian Bank, whose gold loan business increased by 12% year over year to Rs 15,513 crore. With its overall gold loan book increasing to Rs 25,226 crore from Rs 19,841 crore the previous year, Federal Bank claimed a 27 percent gain. Collaborations Federal Bank has partnerships with Rupeek, Oropay, DGV, and New Street Tech for its gold lending business. For its gold lending operations, CSB Bank has a collaboration with IIFL Finance, whilst South Indian Bank has a cooperation with Rupeek. Regarding this, banks said that they perceive no conflict between their fintech partnerships and their gold lending operations. The managing director and chief executive officer (MD and CEO) of South Indian Bank, P Seshadri, said that the bank does not anticipate any hardship in its gold lending business and would want to establish new partnerships. "Our branches generate the majority of our business, but we would like to establish new partnerships," Seshadri said. Anvil regulations In addition to applying regulatory pressure on fintech partnerships, the RBI requested on March 4 that IIFL Finance cease authorizing and paying out gold loans after identifying some "material supervisory concerns" in the company's portfolio of gold loans. The day following the regulatory action, its shares saw a severe decline. The regular auction procedure was not followed, and the charges being applied to client accounts were opaque, according to the RBI's assessment. "These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI stated. Following this, Moneycontrol said that although there isn't much growing tension, some lenders are evaluating their relationship with the firm. "We are reviewing our business in conjunction with IIFL ...

Models should be validated basis real time case level data in addition to pool of data to increse the overall efficiency of the model .

RBI warns NBFCs against over-dependence on "Algorithmic Credit Models": The Reserve Bank of India (RBI) has issued a warning to non-bank finance companies (#NBFCs) about the increasing reliance on algorithm-based credit models. The RBI emphasized the potential risks associated with these models and urged NBFCs to exercise caution to prevent future financial instability. Algorithm-based credit models, which leverage historical data to assess creditworthiness and streamline loan approval processes, have become increasingly popular among NBFCs aiming for rapid growth. However, the RBI highlighted several critical issues associated with this trend. An over-reliance on historical data can lead to significant errors in a dynamic market environment, posing risks to financial stability. RBI has pointed out that while these models can enhance efficiency, they are not foolproof and may fail to adapt to evolving market conditions, potentially leading to inaccuracies in credit assessments. This over-reliance poses a significant risk, especially when NBFCs set high-risk limits for specific segments such as unsecured loans. The current trend among NBFCs to concentrate on high-risk lending segments, including retail unsecured lending, top-up loans, or capital market funding, could lead to significant financial distress in the future. The RBI advised that over-reliance on such products may bring financial difficulties later on. RBI also advised NBFCs to diversify their funding sources. This diversification is crucial to mitigating liquidity risks that could arise from an overdependence on a single funding channel. By spreading their sources of capital, NBFCs can better navigate potential financial crises and maintain stability. In addition to urging caution with credit models, the RBI also advised NBFCs to diversify their funding sources. This diversification is crucial to mitigating liquidity risks that could arise from an overdependence on a single funding channel. By spreading their sources of capital, NBFCs can better navigate potential financial crises and maintain stability. The RBI's cautionary note comes at a critical time when NBFCs are experiencing rapid growth and expanding their reach across India. While the adoption of technology and innovative credit assessment models is essential for progress, the central bank's guidance highlights the importance of balanced and prudent financial practices. Ultimately, the RBI's message is clear: while algorithm-based credit models offer significant benefits, NBFCs must not ignore the inherent risks. By maintaining a diversified portfolio and exercising caution in high-risk lending, NBFCs can ensure sustainable growth and contribute to the overall stability of the financial system. #nbfc #fintech #nextfin #lending #loan

Q1/2024 – Nam A Bank Records Over 30% Rise in Profit Amidst a challenging market landscape, Nam A Bank recorded impressive growth in key business indicators, emerging as a bright spot in its Q1/2024 financial report. It is a solid foundation for Nam A Bank to realize the business targets set forth at the recent General Meeting of Shareholders, continuing the path toward sustainable development. Accordingly, the bank achieved pre-tax profit of nearly VND 1,000 billion, an increase of VND 236.4 billion or 30.98% year-on-year, fulfilling 25% of the 2024 plan. The improved business results can be attributed to increased interest income and a significant reduction in provisions due to the resolution of debts at VAMC. Notably, this is the first time Nam A Bank has recorded a quarterly profit of nearly VND 1,000 billion. Of which, net interest income increased by VND 163 billion, representing a 10.48% year-on-year growth. Income from service activities increased by VND 78.9 billion, a 60.83% surge compared to the same period in 2023. As of March 31, 2024, Nam A Bank’s total assets reached over VND 216 trillion, growing by VND 6,275 billion since年初, fulfilling 93% of the annual plan. Capital mobilization reached VND 167.2 billion, while outstanding loans reached nearly VND 146.7 billion, representing an increase of 2.05% and 3.76% respectively compared to the beginning of the year. Regarding non-performing loans, the bank continued to effectively manage its NPLs in accordance with the State Bank of Vietnam’s regulations. Group 2 NPLs declined, while other groups recorded a slight increase. According to economic experts, given the positive economic outlook for the remainder of the year and the banking sector’s robust risk management, Nam A Bank is poised to continue reaping positive results in NPL control and resolution. In addition, Nam A Bank completed the resolution of its outstanding debts with VAMC in 2023, amounting to over VND 1,744 billion. This has further fueled growth momentum while significantly reducing the need for provisions in Q1/2024 compared to the same period last year. The bank reduced its credit risk provisioning by VND 112 billion year-on-year. Also in Q1/2024, Nam A Bank officially transferred to the HoSE, marking a significant milestone in its development journey. This move will enhance the bank’s position, affirming its transparency, credibility, and commitment to sustainable growth in the market. In parallel, in February 2024, the bank also received an upgrade in its credit ratings from Moody’s for several key indicators. Specifically, Moody’s upgraded Nam A Bank’s asset quality rating from B3 to B2 and its profitability and earnings metrics from B2 to B1. Despite the challenging economic environment, Moody’s maintained a “stable outlook” for Nam A Bank, reflecting the international rating agency’s confidence in the bank’s operations. In terms of network expansion, Nam A Bank currently operates close to 250 busin...

What Are the Circumstances for Special Bank Loans? https://ift.tt/WUINhcn The State Bank of Vietnam has issued Circular 37 regulating special lending. Accordingly, the State Bank lends from the source of money from performing the central bank’s function of issuing money in cases of lending to pay deposits to depositors in the event of a run on commercial banks, cooperative banks, people’s credit funds, and microfinance institutions (collectively referred to as credit institutions). For specifically controlled credit institutions, special lending is used to implement the approved recovery plan. For specifically controlled commercial banks, special lending is used to implement the approved mandatory transfer plan. The State Bank lends specially to credit institutions in the event of a run. The Vietnam Cooperative Bank lends specially to people’s credit funds in cases of paying deposits to depositors when there is a run on people’s credit funds; with specifically controlled people’s credit funds from the fund for ensuring the safety of the people’s credit fund system at an interest rate of 0% per year to implement the approved recovery plan. For special lending in the event of a run on credit institutions, the special borrower shall use the special loan from the State Bank to pay deposits in VND to individual depositors only. The use of special loans to pay deposits of other subjects shall be decided by the Governor of the State Bank in each specific case of a credit institution. The interest rate for special lending and special lending extension is the refinancing interest rate in the form of secured lending by pledging securities on the disbursement date and the special lending extension date. The overdue interest rate is 130% of the latest in-term special lending interest rate for the special loan. The interest rate is not applicable to overdue interest payments. Ngoc Mai You may also like What’s in it for you: The Benefits of a ‘Cooling Off’ Exchange Rate Strategy According to a report by the State Bank of Vietnam, the Vietnamese Dong (VND) has depreciated by up to 5% against the US Dollar (USD) earlier this year, but as of today, the depreciation stands at a more modest 2.3%. This appreciation of the VND, as noted by experts, will provide local businesses with cheaper access to capital, thus helping to curb inflation. The Central Bank Issues New Circular on Special Lending Cases The State Bank of Vietnam has issued Circular 37/2024/TT-NHNN, which provides guidelines for special lending. Unlocking Credit Potential: Vietnam’s Central Bank Relaxes Lending Limits for High-Performing Banks As of August 28, 2024, banks with a credit growth rate of 80% or more of the target set by the State ...

RBI warns NBFCs against over-dependence on "Algorithmic Credit Models": The Reserve Bank of India (RBI) has issued a warning to non-bank finance companies (#NBFCs) about the increasing reliance on algorithm-based credit models. The RBI emphasized the potential risks associated with these models and urged NBFCs to exercise caution to prevent future financial instability. Algorithm-based credit models, which leverage historical data to assess creditworthiness and streamline loan approval processes, have become increasingly popular among NBFCs aiming for rapid growth. However, the RBI highlighted several critical issues associated with this trend. An over-reliance on historical data can lead to significant errors in a dynamic market environment, posing risks to financial stability. RBI has pointed out that while these models can enhance efficiency, they are not foolproof and may fail to adapt to evolving market conditions, potentially leading to inaccuracies in credit assessments. This over-reliance poses a significant risk, especially when NBFCs set high-risk limits for specific segments such as unsecured loans. The current trend among NBFCs to concentrate on high-risk lending segments, including retail unsecured lending, top-up loans, or capital market funding, could lead to significant financial distress in the future. The RBI advised that over-reliance on such products may bring financial difficulties later on. RBI also advised NBFCs to diversify their funding sources. This diversification is crucial to mitigating liquidity risks that could arise from an overdependence on a single funding channel. By spreading their sources of capital, NBFCs can better navigate potential financial crises and maintain stability. In addition to urging caution with credit models, the RBI also advised NBFCs to diversify their funding sources. This diversification is crucial to mitigating liquidity risks that could arise from an overdependence on a single funding channel. By spreading their sources of capital, NBFCs can better navigate potential financial crises and maintain stability. The RBI's cautionary note comes at a critical time when NBFCs are experiencing rapid growth and expanding their reach across India. While the adoption of technology and innovative credit assessment models is essential for progress, the central bank's guidance highlights the importance of balanced and prudent financial practices. Ultimately, the RBI's message is clear: while algorithm-based credit models offer significant benefits, NBFCs must not ignore the inherent risks. By maintaining a diversified portfolio and exercising caution in high-risk lending, NBFCs can ensure sustainable growth and contribute to the overall stability of the financial system. Ram Rastogi 🇮🇳 Reserve Bank of India (RBI) Fintech Association for Consumer Empowerment (FACE) Digital Lenders Association of India (DLAI) National Payments Corporation Of India (NPCI)

Actually this is not the complete story, in past it’s observed that the DIGITAL LENDING eco systems have only been focused on acquisitions and such underwriting models are not aligned to Digital EWS And algorithm based collection mechanisms. Once u aligned ur acquisitions via these credit trended algorithms and parallel keep a digital tab on monitoring them efficiently, these underwriting models get trained as a feedback through same and continuous enhancements to such models is and should be part of the so called DIGITAL LENDING ECHO SYSTEMS. Concern here is TECHNOLOGY AND DATA analytics have been considered to optimise acquisition stories, rather this shud have been looked upon loss rates, delinquency monitoring and further enhancing each models (acquisitions, risk underwriting and EWS) by making them talk to each other. Happy digital lending 🙏🙏

#digitalpayments #rbi #nbfc #india #fintech #AI #ML Algorithmic credit models are tools used by financial institutions to determine whether to lend money to a person or a business and how much to lend. Here's a simple breakdown: 1. Algorithms:These are sets of rules or instructions that a computer follows to solve problems or make decisions. In this case, the problem is deciding whether someone is likely to repay a loan. 2. Credit Models:These are methods used to assess the creditworthiness (the likelihood of repaying a loan) of borrowers. Traditionally, this involved looking at credit scores and financial history manually. When you put these together in "algorithmic credit models," it means using computer algorithms to automatically analyze various data points about a person or business to decide their creditworthiness. These data points can include credit scores, payment histories, income levels, and even more unconventional data like social media activity or transaction patterns. The goal is to make quicker, more accurate, and less biased lending decisions compared to traditional manual methods.

The regulation of interbank lending rates The regulation of interbank lending rates by the Central bank can significantly impact the cost of credit in Kenya. Interbank lending rates refer to the interest rates at which banks lend to each other in the interbank market. These rates are crucial for maintaining liquidity and managing short-term funding needs. Banks with excess funds lend to other banks that need liquidity. Conversely, when banks face a shortage of funds, they borrow from other banks. The interbank market facilitates risk-sharing and liquidity transfer among banks. Impact on Cost of Credit The regulation of interbank lending rates can influence the overall cost of credit in several ways as highlighted below Liquidity Provision: By regulating interbank rates, the Central Bank of Kenya can ensure sufficient liquidity in the banking system. When liquidity is abundant, banks can meet their funding needs without resorting to expensive sources of financing. Lowering Borrowing Costs: When interbank rates are well-regulated and stable, banks can borrow from each other at reasonable rates. Lower borrowing costs for banks translate into lower costs for borrowers (individuals, businesses, and corporations). Transmission Mechanism: Changes in interbank rates affect other interest rates in the economy e.g. Prime Lending Rate: Commercial banks often set their prime lending rates based on interbank rates. A reduction in interbank rates can lead to a decrease in the prime lending rate, making loans more affordable for borrowers. Consumer Loans: When banks pay less to borrow from each other, they can pass on these savings to consumers by offering lower interest rates on personal loans, mortgages, and other credit products. Business Loans: Similarly, businesses benefit from reduced borrowing costs, which can stimulate investment and economic growth. Risk Management: Regulated interbank rates contribute to better risk management. Banks can plan their liquidity needs more effectively, reducing the likelihood of liquidity shortages or excessive borrowing during financial stress. Stability: Stable interbank rates create a predictable environment for banks and borrowers. This stability encourages long-term planning and investment. The Central Bank has implemented reforms to regulate interbank rates: Lowering Rates: The interbank lending rates are expected to stay under 1.5% of the prevailing Central Bank Rate (CBR), down from 2.5%. In Addition, the discount window rate (used as a last resort for banks) has been lowered to three percent above the CBR. These reforms aim to enhance liquidity provision, reduce borrowing costs, and promote stability in the financial system.