Ensuring Resilience and Market Discipline- RBI’s New PCA Framework for NBFCs

The new Prompt Corrective Action(PCA) framework set forth by RBI for troubled NBFCs ensures market discipline and resilience of their financial health. In the past, PCAs were exclusive to banks. But, because many major NBFCs like SREI Group, IL&FS, DHFL, and Reliance Capital have run into financial crises over the past couple of years, this move comes at an apt time. The PCA framework targets to strengthen the supervisory tools from October 1, 2022. This will be based on the NBFCs’ financial position after March 31, 2022.

The primary objective of the PCA or Prompt Corrective Action framework is oriented and much mandated. It enables supervisory intervention at the precise and appropriate time, mandating the supervised entity to properly initiate and implement remedial measures. This is done to restore the supervised entity’s financial health in case of considerable deterioration. The PCA framework also acts as a tool for effective and strict market discipline maintenance.

Which are the entities included?

Previously, The PCA Framework applied to all banks operating in India. This includes foreign banks operating through subsidiaries or branches based on breach of risk thresholds of identified indicators. Now, via the RBI Notification dated December 14, 2021, It will also be applicable for all deposit-taking NBFCs, and other large NBFCs that position on the middle, upper, and top-most levels of the scale-based regulation for NBFCs of the RBI.

This includes  Investment and Credit Companies, Core Investment Companies (CICs), Infrastructure Debt Funds, Infrastructure Finance Companies, Microfinance Institutions, and Factors. But it excludes NBFCs not accepting Public money, Government companies, and Housing Finance companies. This would, therefore, apply to a smaller percentage of 10,000 NBFCs, most of which would be excluded from such tight regulatory purview as of now, till they grow up in size

What Is The PCA Framework

An NBFC will be placed under the PCA framework based on the Supervisory Assessment made by the RBI and/or the audited Annual Financial Results. However, the RBI can impose PCA on any NBFC(if they deem it fit) during a year.

For NBFCs-D and NBFCs-ND, indicators to be tracked would be Capital to Risk-Weighted Assets Ratio (CRAR), Tier I Capital Ratio (*refer to footnotes for definitions), and Net NPA Ratio (NNPA). For CICs, indicators that need to be tracked would be ANW/ARW(Adjusted Net Worth/Aggregate Risk-Weighted Assets), NNPA, and Leverage Ratio. The framework defines 3 risk levels with varying seriousness, criteria to enter either of these risk thresholds and RBI mandated controls (a summary of these is explained in the below table)

For further understanding, Capital Adequacy Ratio (or CRAR) is the ratio of the total capital(tier 1 and tier 2) and risk-weighted assets. For example, a house loan with strong collateral is inherently less risky than a loan given on a letter of credit and hence might need a higher capital cover in case it goes bad. This ratio is used to protect depositors. It also improves the efficiency and stability of financial systems around the world. Tier 1 capital is core capital. It consists of equity capital, intangible asset, ordinary share capital, and audited revenue reserves. Tier-1 capital absorbs losses and doesn’t require a bank to stop operations. Tier 2 capital is made of unaudited retained earnings, unaudited reserves, and general loss reserves. This capital absorbs losses in the event of any company entirely winding up or liquidating. 

 

What is the PCA framework’s impact?

These tight regulations would force the NBFCs to act in the best interest of public investors and make them better handle their financial books and asset quality. This, in turn, will make a provision of timely intervention to avoid a total wind-up and loss of money for equity holders and depositors. These steps are excellent for the current financial ecosystem as they provide a check on any company faltering in its functions. Prima facie, this might seem a bit too stringent, but in the long run, this will ensure better safety of both the customers as well as the companies.

About Signzy

Signzy is a market-leading platform that is redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering totally customizable workflows. It gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling 10 million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks.  It works with over 240+ FIs globally including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a strong global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and it has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Harshal Sarda
Harshal is a technology enthusiast and is passionate about building products solving real world problems using technology.

 

RBI Reduces Redundancy- Over 100 Circulars Withdrawn Following RRA Recommendation

The Reserve Bank of India withdrew over 100 previously issued circulars citing redundancy of their effects in current times.  The move comes as a result of strong recommendations for the initiative from The Regulations Review Authority. This will reduce friction in financial transactions and other interactions. While this is a boost for the economy as a whole, prima facies, it does call for closer scrutiny to evaluate its actual extend.

The withdrawn circulars primarily focus norms concerning standards of:

  • Foreign Portfolio Investors and their Foreign Investments in India
  • RTGS- Real Time Gross Settlement
  • KYC- Know Your Customer
  • AML- Anti-Money Laundering
  • CFT-Combating of Financing Terrorism

RBI had set up Regulations Review Authority(RRA 2.0) in April 2021. The  RRA 2.0’s primary objective is reviewing regulatory advice and instructions while ensuring to identify and remove duplicate or redundant directives. It also streamlines reporting structure to decrease the compliance burden on REs(Regulated Entities). The RRA makes sure to revoke obsolete instructions while actively taking the effort to efface paper-based returns submissions.

The RRA has engaged in extensive communication and consultations with internal and external stakeholders in the industry. It conducted a review to simplify and easily implement supervisory and regulatory directives with these parties.

Mr. Swaminathan J, MD of the State Bank of India holds the chairmanship for the prime advisory group for RRA. The group itself was formed by the RRA shortly following its own constitution.

“The RRA has been engaging in extensive consultations with both – internal as well as external stakeholders, on review of the regulatory and supervisory instructions for their simplification and ease of implementation. Based on these consultations and the suggestions of the Advisory Group, the RRA has recommended withdrawal of 150 circulars in the first tranche of recommendations,” the RBI issued a statement.

With many of the surfeit roadblocks in financial interactions and transactions removed, this is a good time for companies and entities to take new initiatives. It is prime time for them to completely digitize and optimize their processes in the financial sphere.  Even the RRA promotes paperless submissions for applications and returns.

But the initial concern they have is to find trustable service providers for regulatory technology. Good resources, products, and services need to be available at a reasonable cost. Signzy can get you exactly that. We emphasize delivering the best regulatory and other financial technology services for you at state-of-the-art standards.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Mahesh Mohan

A Creative Writer intent on learning and sharing knowledge.

Signzy For Startups Partners With Zone Startups For New Initiative

In yet another decision towards promoting promising new startups to get a better foothold, Signzy for Startups Initiative from Signzy is taking an active step. We are partnering with Zone Startups India, a part of the Ryerson Futures network, which operates outstanding accelerator programs around the world. The partnership is set to bring about benefits to young and promising ventures.

The partnership aims to synergize the portfolio startups of Zone Startups with the benefits of the Signzy for Startups program. This will be a boost to the startup ecosystem as Signzy’s cornucopia of resources can now be accessed by Zone Startup’s portfolio members. The access is as per the prescribed policy. It is an initiative to empower a globally inclusive approach to entrepreneurs across hemispheres.

Our venture, Signzy For Startups helps new startups and entrepreneurs flourish in the expanding ecosystem. We provide our services, which are customizable to the use of smaller companies and startups. This ensures that their potential does not go unnoticed due to insufficient resources. Zone Startups, with a similar vision, yet different processes help startups create secure and sustainable growth through accurate investments.

Most startups in India possess impressive core ideas and criminally untapped potential. Unfortunately, due to a lack of vector and insufficient guidance, they end up unacknowledged and unrecognized. Our Partnership with Zone Startups will create more optimized solutions and resources for newer startups, specifically in the early stages of development. Zone Startups provide resolutions for investment-oriented hurdles while Signzy helps them with required resources. 

Signzy For Startups And How We Bring About Change

Signzy For Startups is the latest initiative from Signzy that aims to help young organizations with a quicker GTM and secure digital customer onboarding. We use our technology & innovative solutions to help them have a broader scope with maximum impact. 

We make your customer onboarding journey simple, quick, and secure. Being a global no-code AI platform for KYC and onboarding services, we help you automate your customer onboarding journey with real-time APIs. We do this with our 200+ Fintech APIs and Nebula- our state-of-the-art AI-based no-code journey builder.

How is Zone Startups Helping Entrepreneurs

Zone Startups is on a mission to better the world by providing opportunities for the world’s most exceptional people building defining companies. With a stunning network all over the world and partnerships with multiple fortune 500 companies, Zone Startups provide strategic and tactical guidance for entrepreneurs and startups seeking to drive market validation, access to investors, advisors, and corporate partners. The partnership with Signzy will help Zone Startups provide a boost to their existing clientele. Collaborations like this are essential to drive the startup ecosystem and enable faster GTM and growth of early-stage startups

What This Means For The Sector

Signzy and Zone Startups have established entities in their respective fields of expertise. The fact that a partnership is established with the sole purpose of helping startups create better processes and strategic structures is a catalyst in the ecosystem. Such an environment helps startups create a symbiotic structure and sustainable growth.

This is an excellent opportunity for startups to help themselves fortify their services. The initiative builds bridges for excelling and tailoring apt solutions for respective enterprises.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Mahesh Mohan

A Creative Writer intent on learning and sharing knowledge.

Connecting With Co-Lending- RBI’s Financing Model Is Bringing NBFCs, HFCs And Banks Together

India’s aspirations for developing an entrepreneur-friendly economy largely depend on provisions of financial assistance for promising ventures. The major hurdle a new vendor seeking to establish his business finds in the country is mostly in the form of financial challenges. Even for the working community, financial aids and loans are very necessary solutions. That’s why 77% of working individuals in India rely on personal loans to merely make ends meet.

Most of these loans are for medical emergencies, MSME expenses, or family needs that may include education, weddings, and home renovations. The majority of the rural population does not have proper access to avail loans at banks. Hence, they seek private firms and local lenders.

As a resolution to the problem, RBI approves co-lending initiatives. Banks and Non-Banking Financial Companies(NBFCs) are exploring such venues, to generate a synergistic opportunity. This model of lending can certainly help India’s priority sectors in a great aspect.

Although co-lending processes have been around for some time in the BFSI sector, in November 2020, the Reserve bank of India furnished guidelines to ease non-bank lenders’ liquidity crisis. It enhances credit flow to dynamic and, productive sectors. Banks and NBFCs are increasingly exploring opportunities for co-lending

What Is The Co-Lending Model(CLM)?

The co-lending model includes the involvement of a bank and an NBFC. Both the lender firms partner to disburse loans to their customers. The RBI’s CLM model approves all registered NBFCs, including HFCs(Housing Finance Companies) to co-lend loans by partnering with banks.

The process involves Banks leveraging balance sheet strength which houses the majority of the whole loan amount while the NBFCs and HFCs enable origination and smooth collection. In essence, banks can lend to registered NBFCs and HFCs. These Institutions pass it on to individuals and organizations in priority sectors. This is because NBFCs and HFCs have greater reach than banks in many parts of the country.

The customers enter into a loan agreement with NBFCs while the latter acts as a single-point interface for the same borrowers. This agreement contains all the features of the prescribed arrangement including the roles and responsibilities of banks and NBFCs. The lenders decide upon an all-inclusive, reasonable interest rate for the ultimate borrower.

The target of this initiative is to better the credit flow of the priority sectors, particularly the underserved and even the unserved sections. This is possible with the coupling of banks providing a lower cost of funds for the customer while the NBFC utilizes their greater reach.

In the statement issued in November 2020, RBI has also emphasized that it strongly prescribes a part of the bank lending must help developmental activities. These include numerous divisions under the priority sector such as agriculture, housing, MSMEs, etc. The norms determine net bank credit(NBC) for each type of bank. Private and public banks lend 40% of NBC while foreign banks lend 32% of their NBC.

The Benefits Of Co-Lending

CLM initiative helps banks lend more funds to regions and sectors where they do not have sufficient reach. The more established reach from NBFCs helps banks meet the total PSL(Priority Sector Lending). The NBFCs on the other hand receive better and top-rated borrowers in their clientele.

It allows banks to expand and increase their lending business while giving NBFCs to source clients, disburse a part of the loan and perform credit appraisals. The end borrower gains accessibility to loans and borrowing options at affordable and competitive rates. In effect, a mass of the population receives inclusion in the booming financial ecosystem.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Mahesh Mohan

A Creative Writer intent on learning and sharing knowledge.

Antler Partners With Signzy For Startup Initiative

In yet another step towards promoting up-and-coming startups to get a better foothold, Signzy for Startups Initiative from Signzy has taken an active step. We are partnering with Antler, one of the world’s largest early-stage startup investment platforms. The partnership is set to bring about benefits to young and promising ventures.

The Partnership Aims to catalyse the portfolio startups of Antler with the benefits of the Signzy for Startups program. This will be a boost to the startup ecosystem as Signzy’s prescribed resources can now be accessed by Antler’s portfolio members. The access is as per policy. It is a step to empower a globally inclusive approach to startups across the world.

Our initiative, Signzy For Startups helps new entrepreneurs and startups flourish in the expanding ecosystem. We provide our services customized to the use of smaller companies and startups. This ensures that their potential does not go unnoticed due to a lack of resources. Antler, with a similar vision, yet a different method helps startups create sustainable growth through apt investments.

Most of the startups in India have impressive core ideas and untapped potential. Unfortunately, due to a lack of direction and insufficient guidance, they end up unrecognized and unacknowledged. Our Partnership with Antler will create more optimized solutions for newer startups, especially in their early stages. Antler quenches their demand for sufficient investment while Signzy helps them with the resources needed.

Signzy For Startups And How We Bring About Change

Signzy For Startups is the latest initiative from Signzy that aims to help young organizations with a quicker GTM and secure digital customer onboarding. We use our technology & innovative solutions to help them have a broader scope with maximum impact. 

We make your customer onboarding journey simple, quick and secure. Being a global no-code AI platform for KYC and onboarding services, we help you automate your customer onboarding journey with real-time APIs. We do this with our 200+ Fintech APIs and Nebula- our state of the art AI based no-code journey builder.

How is Antler Helping Startups

Antler is on a mission to improve the world by investing in the world’s most exceptional people building the defining companies. Antler works with founders from the earliest stages of ventures. This makes sure that they have the right impact and accelerated growth through their investment, platform and network. They also invest in founders from around the world and across a wide range of areas. These include emerging sectors like robotics, AI, health-tech, fintech and prop-tech. The partnership with Signzy will help Antler provide Free credits of Signzy Sandbox to their portfolio startups. Collaborations like this are essential to drive the startup ecosystem and enable faster GTM and growth of early-stage startups

What This Means For The Sector

Signzy and Antler are established entities in their respective fields of expertise. The fact that a partnership has been initiated with the sole purpose of helping startups create better processes and operative structures is a breath of fresh air. Such an environment helps startups establish a symbiotic structure and stable growth.

This is an excellent opportunity for startups to help themselves fortify their services. The initiative builds bridges for excelling and tailoring apt solutions for respective enterprises.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Mahesh Mohan

A Creative Writer intent on learning and sharing knowledge.

1 2 3 4 5