INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Himanshu Malhotra and Purva Anand, Shardul Amarchand Mangaldas & Co
data have taken the lead in the development of these alternative credit scoring models. The DL Guidelines mandate that REs undertake responsible lending by capturing the economic profile of the borrowing (including age, occu - pation, income, etc) to assess the borrower’s creditworthiness in an auditable way. To this end, the DL Guidelines permit collecting data that is required in connection with its operations, pro - vided the digital service provider/RE is able to demonstrate a tangible and direct link between the borrower data collected and economic pro - filing of the borrower enabling credit decision- making. The RBI also dictates detailed regulatory requirements and procedures to be followed for undertaking KYC and anti-money laundering checks on prospective borrowers at the time of onboarding. 4.3 Sources of Funds for Fiat Currency Loans Different lender categories in India rely on varied sources of capital for lending. Traditional lenders primarily rely on deposits for providing loans to borrowers and are governed by capital require - ments and prudential norms prescribed by the RBI. Further, the RBI restricts banks from sanc - tioning loans for certain specified end uses, such as: • banks are prohibited from sanctioning loans against the security of their own shares; • banks are prohibited from sanctioning such loans that are to be used for buy-back of securities; and • banks are restricted from granting loans to their directors or their relatives, except where approved by the bank’s board of directors
and subject to compliance with other speci - fied restrictions. NBFC NBFCs primarily rely on borrowed funds (either from domestic banks or external commercial borrowings – ie, borrowings taken from eligible overseas lenders) and equity funds, to provide loans to customers. NBFCs are also regulated by prudential regulations prescribed by the RBI, which include maintenance of leverage ratio and capital adequacy norms. The Bond Market The bond market in India is growing and inves - tors in corporate debt securities include primarily banks, mutual funds, and wealth management funds. The investor entities in debt securities may either be domestic or foreign portfolio investors registered with SEBI. In the case of foreign portfolio investors, there are restrictions on end uses, in other words, funds raised from such foreign portfolio investors cannot be used for investments in real estate business, capital markets and purchase of land. Given the rating requirements linked to the issuing of debt securi - ties, access to debt capital markets tends to be restricted to larger corporates and has not been fully tapped into by the newer fintech platforms. Eligible entities are permitted to borrow funds as external commercial borrowings from eligi - ble overseas lenders, subject to compliance with requirements such as all-in cost ceilings, minimum average maturity periods and end use restrictions. P2P Lending The RBI also permits P2P lending via REs which act as facilitation platforms for lenders to iden - tify prospective borrowers through a digital plat - form. Under such P2P lending arrangements,
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