INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Himanshu Malhotra and Purva Anand, Shardul Amarchand Mangaldas & Co
robo-advisory, putting them in competition with new and upcoming specialised start-ups. 3.3 Issues Relating to Best Execution of Customer Trades The robo-advisory landscape in India is still evolving. A focus area has been to solve net - work creation and connectivity issues between the clients and robo-adviser platforms, which may affect the speed of execution. Further, it is critical that the nuances of the mate - rial and procedural aspects of investments in various assets through a robo-advisory platform are covered by the internal policies of the robo- adviser entities. This is especially important from the perspective of new or first-time investors operating through a robo-advisory platform. The lending regulations in India are broadly bor - rower agnostic. However, the extent of regula - tory supervision differs depending on the cat - egory of lender. Both banks and NBFCs are required to com - ply with specific capital adequacy, asset quality and prudential norms. While banks are generally heavily regulated, NBFCs are subject to relatively less stringent regulation. Lending service provid - ers or digital lending applications are front-end entities and are only indirectly governed by the DL Guidelines. From a business perspective, banks primarily extend secured credit to large entities that pose a lower credit risk and have substantial credit 4. Online Lenders 4.1 Differences in the Business or Regulation of Fiat Currency Loans Provided to Different Entities
history and business operations. A significant proportion of fintech lenders are licensed as NBFCs – which typically cater to MSMEs and start-ups, which may be unable to demonstrate the same degree of credit strength and opera - tions as large corporations. In the retail/individ - ual borrower space, traditional forms of credit such as home loans/mortgage-backed loans are offered by banks, and more unique products, including smaller ticket, salary/cashflow-backed loans are largely the domain of NBFCs/fintech players. The RBI has also issued a designated regula - tory framework for P2P lenders – ie, entities that do not lend on their own books, but offer loan facilitation services between lenders registered on the platform and prospective borrowers. Furthermore, the Indian financial sector also often sees lending partnerships between banks and NBFCs, whereby the bank brings the advan - tage of capital, while the NBFC partner assists with the customer distribution channels and technological aspects. 4.2 Underwriting Processes Traditionally, as a market practice, industry par - ticipants have been relying on the following key parameters for credit underwriting processes: • credit score and credit reports from CICs; • annual income and sources of income; and • status of existing loan accounts, including any delayed repayments, defaults, etc. Non-traditional behavioural data is increasingly being used for credit analysis (see 2.12 Con- junction of Unregulated and Regulated Prod- ucts and Services ). Technology platforms that already have access to some of this behavioural
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