Lack Of Transparency To Dodgy Underwriting Models: Why Is RBI Wary Of BNPL Industry?

Lack Of Transparency To Dodgy Underwriting Models: Why Is RBI Wary Of BNPL Industry?

SUMMARY

While the BNPL model has been a hit with consumers, the central bank plans to examine it and come out with guidelines

Lack of transparency, unreliable underwriting models, risks of defaults are among some of the concerns of the central bank, as per experts

The partnership between fintech players and NBFCs should leverage their respective expertise for convenient credit disbursal with transparency, the experts said

‘Buy Now, Pay Later’ (BNPL) businesses are caught in a regulatory cauldron now. The Reserve Bank of India (RBI) has disallowed non-bank PPI issuers from loading their prepaid instruments (PPI) such as wallets through credit lines. This particular RBI move, a section of BNPL players fear, could toll the death knell for them.“The fintech payment and the lending space have grown in the last few years. Multiple fintech players have come up with exciting products to offer the credit at perusal of the customers. The new BNPL credit-line card products are directly challenging the credit card segment of banks. These credit lines are offered by NBFCs but on prepaid instruments like cards and vouchers,” said Ajay Chaurasia, head of product at digital lending platform RupeeRedee.“Yet, you do not find many honest borrowers who come back and pay. They just vanish. If there are defaults in education, which is close to the Indian psyche, you can imagine in consumables.” An RBI working group study had earlier said, “The (BNPL) platforms do take creative steps once a loan turns to NPA, including post-facto creation of a loan on the books of NBFC. RBI must clearly re-define what constitutes credit so as to classify BNPL as a loan and hence bring it under regulatory coverage.” It had also recommended bringing BNPL within the definition of credit.

The central bank has further said the BNPL model needs to be examined and guidelines framed for this relatively new product in the lending space. 

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