RBI proposes new norms for LSPs to promote transparency

RBI invites applications from eligible SFBs to become regular banks

The Reserve Bank of India (RBI) on Friday proposed that lending service providers (LSPs), acting as agents of banks, should give information on all the loan offers available with them to borrowers so that they can make an informed decision.

Many of the LSPs offer aggregation services for loan products.

LSP is an agent of a regulated entity (RE) who carries out one or more of lender's functions or part thereof in customer acquisition, underwriting support, pricing support, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of REs in conformity with extant outsourcing guidelines.

In December last year, the RBI announced to issue draft framework saying connected lending or lending to persons who are in a position to control or influence the decision of a lender can be of concern, if the lender does not maintain an arm's length relationship with such borrowers.

Such lending can involve moral hazard issues, leading to a compromise in pricing and credit management, it had said.

RBI on Friday invited applications from small finance banks meeting specified criteria for becoming regular or universal banks. An SFB aiming to become a universal bank should have a minimum net worth of Rs 1,000 crore as at the end of the previous quarter (audited) and the shares of the bank should have been listed on a recognised stock exchange, the central bank said. It should also have a net profit in the last two financial years and GNPA and NNPA of less than or equal to 3% and 1%, respectively, in the last two financial years.