MUMBAI: In a bid to curb quid pro quo in lending, the RBI will introduce new regulations that will prevent loans to entities that wield influence over lending institutions. RBI will also revamp rules for loan aggregators to ensure they act in borrowers’ interest by offering them correct choices.
The proposed changes are part of RBI’s ongoing review of prudential norms, which are typically tightened during periods of high credit growth.In the preceding month, the central bank had increased the risk weight for consumer loans to curb their expansion. RBI has said that these measures are yielding results.
The regulations on connected lending are in response to concerns that arise when there is no arm’s length relationship with borrowers. Issues such as moral hazards, which can compromise pricing and credit management, have prompted the regulator to review its regulations.
Although regulations are in place, they are limited in scope and need uniform applicability across all entities, RBI said. On the measures to curb personal loans, RBI said that it was a pre-emptive step to bring an end to exuberance. Swaminathan Janakiraman, RBI deputy governor, said: “An effort was made to put adequate internal measures to ensure that the build-up was avoided but the market was not responding enough.”
The proposed changes are part of RBI’s ongoing review of prudential norms, which are typically tightened during periods of high credit growth.In the preceding month, the central bank had increased the risk weight for consumer loans to curb their expansion. RBI has said that these measures are yielding results.
The regulations on connected lending are in response to concerns that arise when there is no arm’s length relationship with borrowers. Issues such as moral hazards, which can compromise pricing and credit management, have prompted the regulator to review its regulations.
Although regulations are in place, they are limited in scope and need uniform applicability across all entities, RBI said. On the measures to curb personal loans, RBI said that it was a pre-emptive step to bring an end to exuberance. Swaminathan Janakiraman, RBI deputy governor, said: “An effort was made to put adequate internal measures to ensure that the build-up was avoided but the market was not responding enough.”
