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RBI P2P New Guidelines

RBI Updates P2P Lending Guidelines: All You Need To Know

Peer-to-peer (P2P) lending has emerged as a significant alternative to traditional banking channels in India, offering a platform for individuals to lend and borrow money directly without the intervention of banks. As the popularity of these platforms has grown, so too needs robust regulation to ensure transparency, fairness, and protection for both lenders and borrowers. The Reserve Bank of India (RBI), recognizing the potential and the risks associated with P2P lending, has been proactive in setting up a regulatory framework that governs this sector. Recently, the RBI issued updated guidelines aimed at enhancing the transparency and compliance of Non-Banking Financial Company-Peer to Peer Lending Platforms (NBFC-P2P Lending Platforms). These revisions are designed to address the evolving dynamics of the P2P lending space and to curb practices that could undermine the stability and integrity of the financial system.

Overview Of The Revised RBI P2P Lending Guidelines

The Reserve Bank of India’s updated guidelines for P2P lending platforms have introduced several key changes aimed at improving transparency, safeguarding the interests of lenders and borrowers, and ensuring that P2P platforms operate within a well-defined regulatory framework. These guidelines have been formulated after observing certain irregular practices in the industry that violated earlier regulations. The revised guidelines focus on several critical aspects of P2P lending, including the prohibition of credit guarantees, stricter fund transfer rules, restrictions on cross-selling, and enhanced disclosure requirements. These changes are expected to bring about a more transparent and accountable P2P lending environment in India.

Revised P2P Lending Guidelines Explained

No Credit Guarantee Or Enhancement By NBFC-P2P Entities

One of the most significant changes in the revised guidelines is the prohibition of credit guarantees and enhancements by NBFC-P2P entities. Previously, some P2P platforms offered credit guarantees that provided lenders with a sense of security by assuring them of returns even in the event of borrower defaults. However, this practice was filled with risks as it tended to hide the true level of late/missed payments and gave a misleading impression of the platform’s portfolio performance. The RBI has now explicitly banned NBFC-P2P entities from assuming any credit risk, meaning they cannot offer any form of credit guarantee. This shift places the onus of risk squarely on the lenders, ensuring that they fully understand the risks involved in P2P lending. For borrowers, this could mean higher interest rates as lenders factor in the additional risk, but it also means a more transparent and realistic assessment of their creditworthiness.

Fund Transfer Through Escrow Account

Another critical update in the RBI guidelines pertains to the management of funds through escrow accounts. Previously, NBFC-P2P platforms were required to maintain two escrow accounts—one for funds from lenders pending disbursals and another for collections from borrowers. However, there was no strict timeline for the transfer of funds between these accounts, leading to potential delays and inefficiencies. The revised guidelines now mandate that funds in these escrow accounts must be transferred within one business day (T+1) of receipt. This requirement is aimed at enhancing the efficiency of fund transfers and reducing the risks associated with delays. For lenders, this means quicker access to their funds, while for borrowers, it translates to faster loan disbursements, which can be crucial in cases of urgent financial need.

Cap On Lending Amounts And Net Worth Certificate Requirements

The RBI has also introduced stricter regulations regarding the amount that individual lenders can lend through P2P platforms. As per the updated guidelines, the cumulative lending limit for individual lenders across all P2P platforms has been capped at Rs 50 lakh. Additionally, lenders who wish to extend loans exceeding Rs 10 lakh across P2P platforms are now required to provide a net worth certificate issued by a Chartered Accountant, confirming that they have a minimum net worth of Rs 50 lakh. These measures are designed to ensure that lenders do not overextend themselves financially and that they have the necessary financial backing to cover potential losses. This cap also helps to maintain a balance in the P2P lending market, preventing the concentration of risk among a small group of lenders and promoting broader participation.

Restrictions On Cross-Selling Of Products

The revised guidelines also impose restrictions on the cross-selling of products by P2P platforms. Specifically, NBFC-P2P entities are now prohibited from cross-selling any products other than loan-specific insurance products. This move is intended to reduce conflicts of interest and to prevent platforms from burdening borrowers with additional products that may not be in their best interest. Previously, some platforms had been offering credit enhancement products and loan protection insurance, which, while potentially beneficial, also carried the risk of misleading lenders and increasing the financial burden on borrowers. By restricting cross-selling, the RBI aims to ensure that P2P platforms remain focused on their core function of facilitating loans and that borrowers are not pressured into purchasing unnecessary add-ons.

Monthly Portfolio Performance And NPA Disclosures

In a bid to enhance transparency, the RBI has mandated that P2P platforms must now disclose their portfolio performance, including details on non-performing assets (NPAs) and any pre-NPA delinquencies, every month. This requirement is expected to provide lenders with a clearer picture of the risks associated with lending on a particular platform. Regular disclosures will also allow lenders to make more informed decisions, as they will have access to up-to-date information on the performance of the platform’s loan portfolio. For borrowers, this could lead to more competitive interest rates, as lenders adjust their risk assessments based on the disclosed data. The emphasis on transparency is a crucial step in building trust in the P2P lending ecosystem, which is essential for its long-term growth and sustainability.

Revised Fee Structure For P2P Platforms

The RBI has also revised the fee structure that P2P platforms can charge for their services. Under the new guidelines, fees must either be a fixed amount or a fixed percentage of the principal amount involved in the lending transaction, and they cannot be contingent upon the borrower’s repayment performance. This change is aimed at ensuring that P2P platforms are compensated fairly for their services, while also preventing them from taking on additional risk by tying their fees to loan performance. For lenders, this means greater clarity and predictability in terms of the costs associated with using P2P platforms. It also ensures that platforms are incentivised to focus on the efficient and effective facilitation of loans, rather than on maximising their fee income through risky lending practices.

Industry Response To The Revised P2P Lending Guidelines

These measures have triggered significant reactions from industry members, who are now considering approaching the central bank to seek amendments and clarifications.

Concerns Over T+1 Settlement Rule

One of the primary concerns raised by P2P lending platforms pertains to the new requirement that mandates the clearance of funds in the escrow accounts of lenders and borrowers within a day (T+1). Many industry players find this rule to be overly stringent. The Association of P2P Lending Platforms, representing the interests of these platforms, is planning to request an extension of this timeline to T+2 or even T+3 days. They argue that deploying funds within a single day poses practical challenges, which could hamper the efficiency of their operations.

Intent Behind The Regulations

The RBI’s regulations aim to ensure that lenders’ money does not remain with the P2P platform, thereby safeguarding the interests of lenders. From the perspective of lenders, this is a positive move, as it ensures that their funds are promptly returned once the borrower repays the loan. This measure is seen as a step towards reducing the risk associated with P2P lending by preventing platforms from holding onto lenders’ money for extended periods.

The Current Size Of The P2P Lending Industry In India

The P2P lending industry in India is currently valued at approximately ₹7,000-8,000 crore. There are about 20 P2P platforms in the country, all registered with the RBI as Non-Banking Financial Companies (NBFCs). These platforms generate revenue through registration fees, processing fees, and fees collected during repayment.

Conclusion

The recent updates to the RBI P2P guidelines mark a significant step forward in the regulation of the P2P lending industry in India. By addressing key issues such as credit risk, fund management, cross-selling, and transparency, the RBI is working to ensure that P2P platforms operate fairly, transparently, and in the best interest of all participants. While these changes may initially pose challenges for some platforms, they ultimately aim to promote the long-term stability and growth of the P2P lending market. As the industry continues to evolve, these guidelines will play a crucial role in shaping its future, ensuring that it remains a trusted and reliable option for both lenders and borrowers in India.

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FAQs around updated P2P Lending Guidelines

The current cumulative lending limit for individual lenders across all P2P platforms stands at INR 50 lakh. 

In India, the RBI sets a maximum limit for P2P lending, usually restricting each lender to a total of Rs. 10 lakhs across all platforms.

The Reserve Bank of India (RBI) has established specific regulations for Peer-to-Peer (P2P) lending platforms to ensure the safety and transparency of the sector. Here are the key points of the RBI regulations for P2P lending:

  1. Registration Requirement: P2P lending platforms must be registered as Non-Banking Financial Companies (NBFCs) with the RBI.
  2. Cap on Lending and Borrowing:
    • Per Lender Limit: A lender cannot invest more than Rs. 50,00,000 across all P2P platforms. Additionally, the exposure of a single lender to a single borrower is capped at Rs. 50,000.
    • Per Borrower Limit: A borrower can borrow a maximum of Rs. 10,00,000 across all P2P platforms.
  3. Escrow Account: All fund transfers between participants must be through an escrow account held by a bank, ensuring that the P2P platform does not directly handle the funds.
  4. Disclosure Requirements: P2P platforms must disclose all relevant information about potential borrowers to lenders, including credit scores, loan purpose, and terms.
  5. Prohibition on Cross-Border Transactions: P2P lending is restricted to domestic transactions, meaning lenders and borrowers must be Indian residents.
  6. Operational Restrictions:
    • P2P platforms cannot provide any form of credit enhancement or guarantee.
    • They cannot hold deposits from lenders or borrowers.
    • The platform’s role is limited to facilitating transactions between lenders and borrowers without participating directly in the lending or borrowing process.
  7. Grievance Redressal: Platforms must have a grievance redressal mechanism in place to resolve complaints from participants.
  8. Reporting Obligations: P2P platforms are required to submit regular reports to the RBI on their financial health, operations, and compliance with regulations.

An NPA (Non-Performing Asset) refers to a loan where the borrower has missed scheduled payments for a certain period. A high NPA rate signals that many borrowers are defaulting, which could raise concerns about the platform’s effectiveness in screening borrowers.

By Abhinandan, ago
RBI

NPCI Introduces UPI Circle To Allow Delegated Payments

In a significant move to further enhance the inclusivity and utility of the Unified Payments Interface (UPI), the National Payments Corporation of India (NPCI) has introduced a groundbreaking feature known as “UPI Circle.” This initiative is designed to address the needs of users who remain dependent on cash for their daily transactions due to their inability to manage finances through their bank accounts. The UPI Circle was endorsed during the UPI Steering Committee meeting on August 3, 2023, marking a new chapter in the evolution of digital payments in India.

Why The Need For UPI Circle?

While UPI has already established itself as the preferred mode of payment for millions of users by offering a seamless and secure digital payment experience, there remains a segment of the population that continues to rely on cash. These users often face barriers in managing their finances through traditional banking channels, which hinders their ability to fully participate in the digital economy. UPI Circle aims to bridge this gap by allowing primary users to delegate payment responsibilities to trusted secondary users.

How Does UPI Circle Work?

UPI Circle is a feature that enables a primary UPI user to authorize a trusted secondary user to perform transactions on their behalf. This delegation can be done either partially or fully, depending on the needs and preferences of the primary user. The introduction of UPI Circle caters to individuals such as the elderly, differently-abled, or those without the ability to manage their finances independently.

Full Delegation allows the primary user to grant a secondary user the authority to initiate and complete transactions within predefined spending limits. For full delegation, members must enforce a maximum monthly limit of INR 15,000 per delegation and a per-transaction limit of INR 5,000. This feature is particularly useful for individuals who need someone else to manage their day-to-day financial transactions.

Partial Delegation offers an additional layer of control, where the primary user permits the secondary user to initiate payment requests. However, the final authorization of the transaction requires the primary user’s UPI PIN, ensuring that the primary user retains ultimate control over their finances. Existing UPI limits shall be applicable in case of partial delegation.

UPI Circle Security And User Experience Enhancements

NPCI has emphasized the importance of security and user experience in the rollout of UPI Circle. To ensure the safety of delegated transactions, several guidelines and protocols have been established:

  • Independent User Journeys: UPI apps and Payment Service Providers (PSPs) are required to offer distinct user journeys for primary and secondary users. This ensures that both users can choose their preferred UPI apps without any restrictions.
  • Mandatory Security Protocols: Secondary users must authenticate their identity using app passcodes or biometric methods such as fingerprint or face recognition before initiating any transaction. This measure is crucial to prevent unauthorized access and maintain the integrity of the UPI system.
  • Seamless Linking Process: The primary user can link a secondary user by scanning a QR code or entering a UPI ID, followed by selecting the contact number from their list. In later phases, manual entry of mobile numbers for linking will be restricted to enhance security.
  • Delegation Limits: A primary user can delegate up to five secondary users, while a secondary user can accept delegation from only one primary user. This restriction helps manage and monitor the flow of transactions within a controlled environment.

UPI Circle Operational Guidelines And Compliance

To ensure the smooth operation and integration of UPI Circle, NPCI has set forth several operational guidelines:

  • Cooling Period and Transaction Limits: A cooling period of 24 hours is imposed after the successful linking of a primary and secondary user. During this period, a daily transaction limit of INR 5,000 is enforced for both full and partial delegations to mitigate potential risks.
  • Visibility and Control: Primary users are granted full visibility of transactions performed by secondary users, both on their UPI app and bank account statements. This transparency is vital for monitoring and managing delegated transactions.
  • Compliance with RBI Guidelines: All members involved in the UPI ecosystem must adhere to the Reserve Bank of India (RBI) guidelines on the Harmonization of Turn Around Time (TAT) and customer compensation for failed transactions. These guidelines ensure that users are compensated promptly in case of transaction failures.
  • Online Dispute Resolution (ODR): ODR functionality will be available for all UPI transactions under the UPI Circle, providing users with a streamlined process for resolving any disputes that may arise.
  • Reconciliation and Settlement: The reconciliation process for UPI Circle transactions will follow existing UPI guidelines. A new purpose code in the UPI raw file and an additional line item in the Net Settlement Report will be introduced to identify and settle UPI Circle transactions accurately. An additional raw file containing details of secondary users will also be provided, which will be shared with the primary PSP, secondary PSP, and remitter bank.

Conclusion

The introduction of UPI Circle by NPCI represents a significant advancement in the UPI ecosystem, particularly in its quest to include users who have been traditionally underserved by digital financial services. By enabling the delegation of payment responsibilities, UPI Circle not only empowers users who are unable to manage their own accounts but also enhances the overall security and functionality of UPI transactions. As this feature rolls out, it is expected to further increase UPI adoption across diverse user segments, reinforcing UPI’s role as the backbone of India’s digital payments landscape.

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FAQs Around UPI Circle

To link a secondary user, the primary user must first scan a QR code or enter the UPI ID, followed by selecting the contact number from their contact list. In a later phase, the primary user will be able to link a secondary user solely by selecting the contact number from the contact list, with manual entry of mobile numbers being restricted

The Unified Payments Interface (UPI) is owned and operated by the National Payments Corporation of India (NPCI). NPCI is a not-for-profit organization established by the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA).

Regular UPI transactions have a daily limit of ₹1 lakh. Withdrawals from ATMs using UPI apps are capped at ₹10,000 per day. Additionally, bank UPI apps permit up to 20 transactions per day.

Yes. UPI can be done without the internet. You have to dial *99# on your phone from the registered mobile number; the same number should be linked to your bank account. By following the steps that will be shown on your screen, you can easily use UPI offline.

By Abhinandan, ago
RBI Credit Score Update Mandate

RBI Mandates Faster Credit Score Reporting For Lenders

In a significant move towards enhancing the accuracy and timeliness of credit information, the Reserve Bank of India (RBI) has mandated a shift from the traditional monthly reporting of credit data to a fortnightly cycle. This new regulation, effective from January 1, 2025, requires Credit Institutions (CIs) to report credit information to Credit Information Companies (CICs) like CIBIL every two weeks. The change aims to ensure a more up-to-date reflection of borrowers’ financial health, benefiting both borrowers and lenders.

The Importance Of CIBIL Scores In Financial Health

CIBIL scores, a critical metric used by lenders to evaluate the creditworthiness of borrowers, are influenced by various factors, including repayment history, credit utilisation, and the frequency of credit inquiries. With the RBI’s new mandate, the impact of these factors on one’s CIBIL score could be reflected more swiftly, potentially benefiting those who consistently manage their credit well.

Impact Of Fortnightly Credit Score Reporting On Borrowers

For borrowers, the primary benefit of this change lies in the faster reflection of loan repayments and other credit activities on their credit reports. Under the monthly reporting system, it could take up to a month for changes in a borrower’s credit behaviour to be updated in their CIBIL score. With fortnightly reporting, this timeframe is cut in half, providing a more accurate and timely representation of a borrower’s credit standing. This can be particularly advantageous for individuals who are actively trying to improve their credit scores by paying off debt or making timely payments.

Moreover, for those who may be struggling with high levels of debt, the frequent updates could provide earlier warnings of deteriorating credit health, allowing them to take corrective measures sooner.

Benefits For Lenders

Lenders stand to gain significantly from the new reporting schedule as well. Access to more recent data will enable them to make better-informed lending decisions. With more frequent updates on borrowers’ credit activities, lenders can more accurately assess credit risk, reducing the likelihood of lending to individuals who may become over-indebted. This is crucial in maintaining a healthy credit market, where the risk of defaults is minimised, and the financial system remains stable.

Compliance And Penalties With These New Proposed Changes

The RBI has set clear guidelines for compliance, stating that CIs must report credit information by the 15th and last day of each month, with data submission to CICs within seven calendar days. This timeline has now been revised to five calendar days, emphasising the importance of timely data processing. CICs, in turn, are required to ingest this data within five calendar days of receipt. Failure to comply with these regulations will result in penal actions as per the provisions of the Credit Information Companies (Regulation) Act, 2005 (CICRA, 2005).

RBI’s Initiative To Combat Unauthorised Digital Lending Apps

In an additional move to enhance the safety and reliability of digital financial transactions, the Reserve Bank of India (RBI) has announced plans to set up a public repository for digital lending apps. This initiative, revealed by RBI Governor Shaktikanta Das during the monetary policy review on August 8, aims to curb unauthorised practices in the digital lending space.

The RBI’s approach to tackling these unauthorised apps includes requiring regulated entities to report their digital lending applications to the RBI. This reporting mechanism is expected to play a significant role in mitigating the risks associated with unverified and potentially fraudulent digital lending platforms.

Recent Monetary Policy Committee Decisions

In tandem with these regulatory updates, the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent. This decision, made by a majority vote of 4:2, reflects the MPC’s ongoing focus on balancing inflation control with economic growth. Additionally, the six-member panel chose to maintain a ‘withdrawal of accommodation’ stance, implying that all other rates, including the Standing Deposit Facility (SDF), Marginal Standing Facility (MSF), and Bank Rate, will remain unchanged.

A new feature called “Delegated Payments” is also being proposed for the United Payments Interface (UPI), allowing a primary user to authorise another person (secondary user) to conduct UPI transactions from the primary user’s bank account, up to a specified limit. This eliminates the need for the secondary user to have their bank account linked to UPI, thereby expanding the accessibility and adoption of digital payments.

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FAQs

Yes, a CIBIL report is mandatory for most lenders when assessing an individual’s creditworthiness before approving loans or credit cards.

The Reserve Bank of India (RBI) does not have a specific credit rating requirement for itself. However, entities regulated by the RBI, such as banks and financial institutions, often need to meet certain credit rating criteria for various financial operations, such as issuing bonds or accessing certain facilities. These ratings are typically provided by accredited credit rating agencies like CRISIL, ICRA, CARE and more.

CIBIL (TransUnion CIBIL), along with other credit information bureaus like Equifax, Experian, and CRIF High Mark, is regulated by the Reserve Bank of India (RBI) under the Credit Information Companies (Regulation) Act, 2005 (CICRA).

Yes, a person can have no CIBIL score. This typically occurs when an individual has no credit history, meaning they have never borrowed money or used credit.

No, credit rating is not mandatory for individuals in India. Credit rating is primarily used for assessing the creditworthiness of corporations and government entities, not individuals. However, individuals do have a credit score, which is generated by credit bureaus based on their credit history.

No, the RBI does not primarily regulate credit rating agencies. The Securities and Exchange Board of India (SEBI) is the primary regulator for credit rating agencies in India. However, the RBI does have some oversight over credit rating agencies in specific areas related to the banking and financial sector.

Anyone with a grievance against any department of the Reserve Bank can submit their complaint to the CEP Cell via email at crpc@rbi.org.in.

CIBIL scores are generated and controlled by TransUnion CIBIL Limited, based on credit information provided by various financial institutions and banks.

By Abhinandan, ago
GST Multi State Company Presence

ISD Registration Compulsory For Multi-State Presence Companies

The Finance Bill, 2024, introduced several pivotal changes to the Goods and Services Tax (GST) law. Two significant amendments include mandatory Input Service Distributor (ISD) registration for multi-state companies and the imposition of penalties for unregistered machines in the manufacturing of pan masala, gutkha, and other tobacco products.

Mandatory ISD Registration For Multi-State Companies

Starting April 1, 2025, companies operating across multiple states must register as Input Service Distributors (ISD) under the Goods and Services Tax (GST) regime. This mandate is designed to streamline the distribution of input tax credits (ITC) for services availed, ensuring a fair and transparent allocation among various branches of a business.

The Finance Bill, 2024, introduced mandatory ISD registration for businesses with multi-state GST registrations. This change aims to prevent tax evasion and enhance the transparency of ITC distribution among different branches.

The Central Board of Indirect Taxes and Customs (CBIC) has set April 1, 2025, as the deadline for companies with a multi-state presence to register as ISDs. Companies must ensure that they are compliant with this new requirement to avoid penalties and ensure smooth ITC distribution.

What Is An Input Service Distributor (ISD)?

An Input Service Distributor (ISD) is a central office of a business that receives tax invoices for input services and distributes the ITC to its respective branches. This mechanism is crucial for multi-state companies to efficiently manage their tax credits and remain compliant with GST regulations.

Mechanism for ITC Distribution

The GST rules prescribe a specific mechanism for the distribution of ITC by ISDs. The common ITC is apportioned based on the turnover ratio of the different branches under the same Permanent Account Number (PAN). This method ensures a fair allocation of tax credits, reflecting the actual usage of services across branches.

Penalties For Unregistered Pan Masala, Gutkha & Tobacco Manufacturing Machines

Alongside the new notification mandating ISD registration for companies, a significant development is the introduction of strict penalties for manufacturers of pan masala, gutkha, and other tobacco products using unregistered machines. This measure, effective from October 1, 2024, aims to curb tax evasion and ensure compliance within the tobacco manufacturing industry.

Tobacco Unregistered Machines

The Central Board of Indirect Taxes & Customs (CBIC) has outlined specific penalties and compliance requirements for manufacturers of tobacco products. The key provisions include:

  1. Registration of Machines: Manufacturers must register all machines used in the production of pan masala, gutkha, and other tobacco products. This includes disclosing the make, year of production, number of tracks, and capacity of each machine.
  2. Penalties for Non-Compliance: A penalty of ₹1 lakh will be imposed for each unregistered machine manufacturing pan masala, gutkha, and other tobacco products. Additionally, unregistered machines will be subject to seizure and confiscation. However, if the penalty is paid or the registration is completed within three days of receiving the penalty order, the seizure and confiscation will be waived.
  3. Track-and-Trace System: The government has mandated a track-and-trace system to monitor the production and distribution of tobacco products. This system is intended to prevent illicit trade and ensure that all manufactured products are accounted for and taxed appropriately.

Compliance Deadlines

  • October 1, 2024: Deadline for registering machines used in the manufacture of pan masala, gutkha, and other tobacco products.
  • April 1, 2025: Additional compliance measures for mandatory ISD registration for entities with multiple registrations.

FAQs

Under Section 13 of the Finance Act 2024, manufacturers of pan masala, gutkha, and other tobacco products will face a ₹1 lakh penalty for each machine that is not registered.

October 1, 2024 is the deadline for registering machines used in the manufacture of pan masala, gutkha, and other tobacco products.

April 1, 2025 is the deadline for companies to register as ISD’s with GST authorities.

By Abhinandan, ago
RBI New AePS guidelines

RBI Issues New Due Diligence Guidelines For AePS Touchpoint Operators

The Reserve Bank of India (RBI) has introduced new guidelines aimed at fortifying the security of the Aadhaar Enabled Payment System (AePS). These guidelines, issued through a draft circular on July 31, 2024, outline the due diligence required by banks to verify AePS touchpoint operators, alongside proposing new methods for digital payment authentication.

In recent times, AePS has become a target for fraudsters, primarily due to identity theft and the compromise of customer credentials. This necessitated a robust framework to enhance the security of AePS transactions and protect users, especially in rural and semi-urban areas where these services are predominantly used.

Understanding AePS And AePS Touchpoint Operators

According to the RBI, the Aadhaar Enabled Payment System is a Payment System in which transactions are enabled through Aadhaar number and biometrics or OTP authentication. AePS enables basic banking services, viz., cash withdrawal, balance enquiry, mini statement, cash deposit, fund transfer, etc.

AePS touchpoint operators play a crucial role in providing essential banking services in rural and semi-urban regions. These operators facilitate transactions such as withdrawals and fund transfers using an Aadhaar number and biometric authentication. However, the increasing incidents of fraud have highlighted the need for stringent measures to ensure the integrity of these services.

New RBI Guidelines On Due Diligence For AePS Operators

The RBI’s draft circular introduces several key proposals aimed at streamlining the onboarding and monitoring processes for AePS touchpoint operators:

Onboarding Process

  • Single Acquiring Bank: Each AePS touchpoint operator can only be onboarded by one acquiring bank. This measure is intended to simplify the oversight and ensure accountability.
  • KYC Update: Operators who have not performed any financial transactions for six months will need to undergo a KYC (Know Your Customer) update before resuming operations. This ensures that only active and verified operators are facilitating transactions.

Ongoing Monitoring

  • Due Diligence by Banks: Banks must carry out ongoing due diligence for all AePS touchpoint operators they onboard. This includes regular updates and verifications to prevent fraud.
  • Transaction Limits: Transaction limits will be set based on the risk profile of each operator, ensuring that their activities align with their operational scope and risk assessment.
  • Location Consistency: Transactions conducted by AePS touchpoint operators must be consistent with their declared location of operation and their risk profile. This measure aims to detect and prevent suspicious activities.

The RBI has invited public comments on these draft guidelines until August 31, 2024. Following this consultation period, banks and the National Payments Corporation of India (NPCI) will have three months to comply with the new directions from the date of issue.

These new guidelines by the RBI are a strategic move to enhance the security of digital payments in India, particularly in rural and semi-urban areas. By tightening KYC norms and ensuring rigorous due diligence, the RBI aims to prevent fraud and protect users.

Services (including Banking) Offered by AePS

Benefits Of The New AePS Guidelines

The new guidelines by the RBI are set to bring several benefits to the AePS framework and its users:

  • Enhanced Transactional Security

With stringent KYC norms and continuous due diligence, the security of AePS transactions will be significantly enhanced. This will help in reducing the risk of fraud and identity theft, providing users with greater confidence in using digital payment systems.

  • Increased Trust in Digital Payments

By ensuring that AePS touchpoint operators are thoroughly vetted and monitored, the RBI aims to build trust in digital payments, particularly among users in rural and semi-urban areas. This trust is crucial for the continued adoption and growth of digital financial services in these regions.

  • Streamlined Operations

The proposal to have each AePS touchpoint operator onboarded by only one acquiring bank will streamline operations and make it easier for banks to monitor and manage their agents. This simplification can lead to more efficient service delivery and better customer experience.

  • Financial Inclusion

AePS has been a key driver of financial inclusion in India, enabling access to banking services for people in remote areas. The new guidelines will ensure that this system remains robust and secure, continuing to serve its purpose of bringing more people into the formal financial sector.

FAQs

According to the RBI, an acquiring bank is the bank which onboards the AePS touchpoint operators.

According to the RBI, an AePS Touchpoint is the terminal deployed by acquirer banks to facilitate AePS transactions, using Aadhaar based biometric / OTP authentication.

As per the RBI, an AePS Touchpoint Operator is the agent onboarded by the acquiring bank who operates the AePS touchpoint.

According to the RBI, Banks and NPCI shall ensure compliance to these directions within three months from the date of issue.

A bank should apply due diligence when onboarding new AePS Touchpoint Operators and periodically update KYC for operators who have been inactive for six months.

The three key components of KYC (Know Your Customer) are:

  1. Customer Identification: Verifying the identity of the customer through documents such as passports, driver’s licenses, and utility bills.
  2. Customer Due Diligence (CDD): Assessing the customer’s risk profile by gathering and evaluating information on their financial background and business activities.
  3. Ongoing Monitoring: Continuously monitoring customer transactions and activities to detect and prevent suspicious behavior or financial crimes.

KYC (Know Your Customer) involves verifying a customer’s identity through documents to confirm they are who they claim to be.

Due Diligence goes beyond basic identification, involving a deeper investigation into a customer’s financial background, business activities, and risk profile to prevent financial crimes and ensure regulatory compliance.

By Abhinandan, ago
GST Collection July 2024

GST Collection Rises 14.4% YoY In July 2024

After facing flak from the public for not releasing data for June 2024, the Government of India has finally released the Goods and Service Tax (GST) Collection data for July 2024. The GST collection in July 2024 experienced a significant rise, showcasing a robust growth of 10.3% to over ₹1.82 trillion. This increase, primarily driven by domestic transactions in goods and services, marks the third-highest monthly collection since the GST regime’s inception on July 1, 2017. These results have been released following the recently announced 2024 Union Budget and the 53rd GST Council meeting.

According to the data released on August 1, 2024, the gross GST revenue for July stood at ₹1,82,075 crore, which includes:

  • Central GST (CGST): ₹32,386 crore
  • State GST (SGST): ₹40,289 crore
  • Integrated GST (IGST): ₹96,447 crore (including ₹48,039 crore collected on imports)
  • Compensation cess: ₹12,953 crore

After accounting for refunds of ₹16,283 crore, the net GST collection was ₹1.66 trillion, reflecting a 14.4% increase compared to last year. The gross GST revenue has consistently shown an upward trend, with April 2024 setting a record high at ₹2.10 trillion.

State-Wise GST Collection Highlights In July 2024

State-wise, Maharashtra led the GST collection with ₹28,970 crore, followed by Karnataka at ₹13,025 crore, Gujarat at ₹11,015 crore, Tamil Nadu at ₹10,490 crore, and Uttar Pradesh at ₹9,125 crore. Notably, these figures exclude GST on the import of goods.

The rise in GST revenue was not uniform across all states. While states like Karnataka and Gujarat showed double-digit growth rates of 13%, others like Telangana and Andhra Pradesh recorded much lower figures, with Andhra Pradesh even showing a 7% decline.

The overall GST collection for the first four months of FY25 stood at ₹7.39 trillion, marking a 10.2% year-on-year growth. This growth in GST revenue indicates a positive trend in the economy, reflecting increased compliance and economic activities.

GST Reforms And Future Prospects

The government has been actively working on GST reforms to simplify the tax structure and improve compliance. Recently, a rate rationalisation panel was reconstituted to suggest changes in the current GST rates, aiming to streamline them to three distinct rates. Currently, GST is levied at four primary rates: 5%, 12%, 18%, and 28%, in addition to some essential commodities that are exempt from GST.

Challenges In GST Collection

Despite the overall positive growth, some challenges need to be addressed. Several states reported subdued growth in GST collections, and there were significant variances in the growth rates of different sectors. Addressing GST evasion, improving GST return filing processes, and enhancing GST e-invoicing systems are critical areas that require continuous focus.

Highlights From The July 2024 GST Collection Data

Gross GST Revenue:

  • Total: ₹1,82,075 crore (10.3% growth from July 2023)
    • CGST: ₹32,386 crore
    • SGST: ₹40,289 crore
    • IGST: ₹96,447 crore (includes ₹47,009 crore from imports)
    • Compensation Cess: ₹12,953 crore

Net GST Revenue (after refunds):

  • Total: ₹1,65,793 crore (14.4% growth from July 2023)
    • CGST: ₹30,414 crore
    • SGST: ₹37,842 crore
    • IGST: ₹84,880 crore
    • Compensation Cess: ₹12,657 crore

Domestic Revenue:

  • Gross Revenue: ₹1,34,036 crore (8.9% growth from July 2023)
  • Refunds: ₹7,813 crore (34.1% decrease from July 2023)

Import Revenue:

  • Gross Revenue: ₹48,039 crore (14.2% growth from July 2023)
  • Refunds: ₹8,470 crore (1.4% growth from July 2023)

Year-to-Date (YTD) Revenue:

  • Gross: ₹7,38,894 crore (10.2% growth from the same period last year)
  • Net: ₹6,55,966 crore (11.0% growth from the same period last year)

Conclusion

The robust growth in GST collection in July 2024 underscores the effectiveness of the GST regime in India. With ongoing reforms and efforts to improve compliance, the GST system is poised to become even more efficient, contributing significantly to the nation’s economic growth. As the government continues to refine and optimise the GST framework, the focus remains on sustaining high collection growth, ensuring GST compliance, and minimising evasion to maximise revenue.

Key Takeaways From GST Collection Data For July 2024:

  • July 2024 saw a 10.3% increase in GST collection, reaching ₹1.82 trillion.
  • The net GST revenue, after refunds, stood at ₹1.66 trillion, a 14.4% increase from the previous year.
  • State-wise, Maharashtra topped the GST collection chart with ₹28,970 crore.
  • The government is working on rationalising GST rates to simplify the tax structure.
  • Despite overall growth, some states showed subdued growth, highlighting the need for targeted reforms and compliance improvements.

The steady rise in GST revenue reflects the growing tax base and improved compliance, contributing to India’s overall economic stability and growth.

Official GST Collection July 2024 Data Download Link – Click Here
August 2024 GST Collection Report – Click Here

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By Abhinandan, ago
Fake ITC In GST FY24

Fake ITC Claims Detection Rises By 51% To Rs. 36374 Cr In FY24

The detection of fake input tax credit (ITC) claims by central GST officers saw a remarkable rise of 50.6% in the fiscal year 2023-24, reaching a staggering Rs 36,374 crore. This substantial increase in detection by the Central Tax formations under the Central Board of Indirect Taxes and Customs (CBIC) was shared with the Parliament by the Minister of State for Finance, Pankaj Chaudhary, in a written response to the Lok Sabha.

Overview Of Fake Input Tax Credit Cases Over The Years

FY 2023-24

  • Cases Booked: 9,190
  • Fake ITC Amount: Rs 36,374 crore
  • Arrests Made: 182
  • Voluntary Deposits: Rs 3,413 crore

FY 2022-23 

  • Cases Booked: 7,231
  • Fake ITC Amount: Rs 24,140 crore
  • Arrests Made: 153
  • Voluntary Deposits: Rs 2,484 crore

FY 2021-22

  • Cases Booked: 5,966

Challenges In Detecting Input Tax Credit Fraudsters

The challenges faced in tracking down Input Tax Credit fraudsters were highlighted by Minister of State for Finance, Pankaj Chaudhary. The primary issue lies in the sophisticated methods employed by the masterminds behind fake ITC schemes. These individuals manage and control a complex network of entities, which are strategically spread across different jurisdictions to evade detection. These intricacies make it difficult for authorities to pinpoint the actual perpetrators.

Government Initiatives To Curb Input Tax Credit Frauds

Honourable minister recently outlined a series of measures implemented by the government to tackle the rampant issue of fake Input Tax Credit (ITC) claims. These measures aim to enhance the integrity of the GST system and ensure compliance across the board.

  1. Biometric-Based Aadhaar Authentication: Risk-based biometric authentication using Aadhaar has been introduced to verify the identity of individuals and entities involved in high-risk transactions.
  2. Physical Verification: Physical verification is mandated for high-risk cases to ensure the authenticity of businesses claiming ITC.
  3. Bank Account Verification: The bank account provided during the registration process must be in the name of the registered person. It should be obtained using the PAN of the registered person and linked with their Aadhaar.
  4. Restriction on ITC Availment: ITC can only be availed against invoices and debit notes that have been furnished by the supplier in their statement of outward supplies. This ensures that only genuine transactions are considered for ITC claims.
  5. Mandatory Filing of FORM GSTR-1: Filing of FORM GSTR-1, which details outward supplies of goods and services, has been made mandatory. This step ensures that all transactions are properly recorded and reported.
  6. Provisional Attachment of Property: Authorities can provisionally attach the property of individuals or entities involved in fraudulent ITC claims. This measure acts as a deterrent against tax evasion.
  7. Restriction on E-Way Bill Generation: Taxpayers who are non-compliant with GST regulations face restrictions on generating e-way bills. E-way bills are essential for the movement of goods, and restricting their generation helps curb tax evasion.
  8. Reduction in E-Invoice Threshold: The threshold limit for issuing e-invoices for B2B transactions has been reduced from Rs 10 crore to Rs 5 crore. E-invoicing enhances transparency and traceability in transactions.
  9. Data Analytics for Risk Assessment: Regular use of data analytics is employed to identify and track risky GST registrations. This proactive approach helps in early detection and prevention of tax evasion.
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What Is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is a mechanism under the Goods and Services Tax (GST) system that allows businesses to claim credit for the tax paid on inputs used in the production or supply of goods and services. This system prevents the cascading effect of taxes by allowing a set-off of the tax paid on inputs against the tax payable on output. In essence, it ensures that the tax is levied only on the value addition at each stage of the supply chain, promoting transparency and reducing the overall tax burden on businesses.

About CBIC

The Central Board of Indirect Taxes and Customs (CBIC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It is responsible for administering customs, GST (Goods and Services Tax), Central Excise, Service Tax, and Narcotics laws in India. The CBIC formulates policies related to the levy and collection of indirect taxes, prevention of smuggling, and administration of related matters. It also oversees the customs processes at ports, airports, and land borders, ensuring smooth and efficient trade operations. Additionally, the CBIC plays a crucial role in implementing tax reforms and modernizing tax administration to enhance compliance and revenue collection.
Shri Sanjay Kumar Agarwal is the Chairman of the Central Board of Indirect Taxes & Customs (CBIC) and also serves as the Special Secretary to the Government of India. An officer of the 1988 batch of the Indian Revenue Service (Customs & Indirect Taxes), he has held numerous key positions in Customs, Central Excise, Service Tax, and GST field formations throughout his career.

FAQs

The penalty for wrong availment of Input Tax Credit (ITC) under GST includes paying interest at 24% per annum on the wrongly availed amount, a monetary penalty equivalent to the amount of the wrong ITC, and a general penalty of Rs. 10,000 or the tax involved, whichever is higher. In severe cases involving fraud, prosecution and imprisonment ranging from 1 to 5 years can be initiated, and the taxpayer’s ITC may be blocked.

Here are the new rules for ITC claims in GST:

  1. Restriction on Unmatched ITC:
    • ITC can only be claimed on invoices and debit notes that are furnished by suppliers in their GSTR-1 and reflected in the recipient’s GSTR-2B.
  2. Matching ITC Claims:
    • ITC claims must match the details uploaded by suppliers in their outward supply statements to be eligible.
  3. Biometric-Based Aadhaar Authentication:
    • Aadhaar authentication is required for taxpayers to avail ITC, ensuring identity verification.
  4. Mandatory GSTR-1 Filing:
    • Suppliers must file GSTR-1 for recipients to claim ITC on their invoices.
  5. Physical Verification:
    • Physical verification of business premises may be conducted for high-risk taxpayers before allowing ITC claims.
  6. Bank Account Verification:
    • The bank account used for GST registration must be in the name of the registered person and linked with their PAN and Aadhaar.
  7. E-Invoicing Requirement:
    • Businesses with turnover above a certain threshold must generate e-invoices for B2B transactions to avail ITC.
  8. Use of Data Analytics:
    • Regular use of data analytics to track and identify risky ITC claims and GST registrations to prevent tax evasion.
  9. Provisional ITC Limit:
    • The limit for provisional ITC (not matched with GSTR-2B) is restricted to a specific percentage of eligible ITC.
  10. Restriction on E-Way Bill Generation:
    • Non-compliant taxpayers face restrictions on generating e-way bills, affecting the movement of goods and ITC claims.
  • Login and Navigate to ITC-01 page.
  • Declaration for claim of input tax credit under sub-section (1) of section 18.
  • Preview GST ITC-01.
  • Submit GST ITC-01 to freeze data.
  • File GST ITC-01 with DSC/ EVC.

Yes, GST Input Tax Credit (ITC) can be refunded under certain circumstances. Here are the key scenarios where a refund of GST ITC can be claimed:

  1. Zero-Rated Supplies:

    • Export of Goods or Services: If you export goods or services, you can claim a refund of the unutilized ITC.
    • Supplies to SEZ: Supplies made to a Special Economic Zone (SEZ) developer or unit are considered zero-rated. You can claim a refund of the accumulated ITC used to make these supplies.

  2. Inverted Duty Structure:

    • If the tax rate on inputs is higher than the tax rate on output supplies, leading to an accumulation of ITC, you can claim a refund of the unutilized credit.

  3. Finalization of Provisional Assessment:

    • If you were assessed provisionally and the final assessment results in a refund, you can claim it.

  4. Deemed Exports:

    • Supplies regarded as deemed exports (as notified) are eligible for a refund of ITC.

  5. Excess Balance in Electronic Cash Ledger:

    • Any excess balance in your electronic cash ledger can be claimed as a refund.
By Abhinandan, ago
RBI KFS expanded to MSME Retail

RBI’s Key Facts Statement (KFS) Extended For All MSME, Retail Borrowers

The Reserve Bank of India (RBI) has recently introduced the Key Facts Statement (KFS) guidelines aimed at enhancing transparency in the lending process for retail and Micro, Small, and Medium Enterprises (MSME) loans. These guidelines mandate that all banks and financial institutions provide clear and concise information about loan terms and conditions, ensuring that borrowers are well-informed before committing to any financial agreements. 

Loan transparency is crucial in fostering trust between lenders and borrowers. Often, borrowers are unaware of the intricate details of their loans, leading to misunderstandings and financial strain. The introduction of the KFS aims to eliminate such issues by standardising the disclosure of key loan details.

Scope And Applicability Of RBI’s KFS

The RBI’s Key Facts Statement (KFS) guidelines are designed to cover a wide range of loans, specifically focusing on retail and MSME loans. This comprehensive approach ensures that both individual borrowers and small businesses benefit from increased transparency and understanding of their loan agreements.

All new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers, must fully comply with these new KFS guidelines, without exception.

Types Of Loans Covered In KFS

The KFS guidelines apply to various types of retail loans, including personal loans, home loans, auto loans, and education loans. For MSMEs, the guidelines encompass working capital loans, term loans, and other credit facilities essential for business operations. By including a broad spectrum of loan types, the RBI aims to standardise the disclosure process across different lending products, thereby simplifying the borrowing experience for consumers and small businesses alike.

Applicability Of KFS To Retail And MSME Loans

Retail loans are typically extended to individual borrowers for personal use, such as purchasing a home or financing education. MSME loans, on the other hand, are provided to small businesses to support their operational and growth needs. The KFS guidelines apply to both these categories, ensuring that borrowers from diverse backgrounds have access to clear and concise information about their loan terms.

The KFS guidelines are mandatory for all banks and non-banking financial companies (NBFCs) operating in India. This includes public sector banks, private sector banks, and foreign banks with operations in the country. By enforcing these guidelines across the entire banking sector, the RBI aims to create a uniform standard for loan disclosures, enhancing transparency and borrower protection.

Key Components Of Key Facts Statement (KFS)

The RBI’s Key Facts Statement (KFS) guidelines require banks and financial institutions to provide borrowers with a comprehensive document that outlines all critical aspects of their loan agreements. This document is designed to be simple, clear, and concise, ensuring that borrowers can easily understand the terms and conditions of their loans. The key components of the KFS include:

  • Basic Information
    The KFS begins with basic information about the loan, including the borrower’s name, the lender’s name, and the date of the agreement. This section also includes details such as the loan account number and the type of loan being provided. By starting with these fundamental details, the KFS ensures that borrowers have a clear understanding of their loan identity.
  • Loan Amount and Tenure
    One of the most critical aspects of any loan agreement is the amount being borrowed and the tenure of the loan. The KFS provides a detailed breakdown of the principal loan amount and the total duration over which the loan will be repaid. This section also highlights any moratorium period during which the borrower may not be required to make repayments.
  • Interest Rate and Type
    Understanding the cost of borrowing is essential for any borrower. The KFS clearly states the interest rate applicable to the loan, specifying whether it is a fixed or floating rate. For floating rate loans, the KFS includes information on the benchmark rate and the margin applied. This transparency helps borrowers assess the affordability of the loan and plan their finances accordingly.
  • Fees and Charges
    Hidden fees are a common concern among borrowers. The KFS addresses this issue by listing all applicable fees, including processing fees, administrative fees, and any other costs that the borrower may incur. This section ensures that borrowers are fully aware of the total cost of the loan, preventing unpleasant surprises later.
  • Repayment Schedule
    The repayment schedule is a critical component of the KFS, outlining the frequency and amount of repayments that the borrower must make. This section includes a detailed amortisation schedule, showing the breakdown of each instalment into principal and interest components. By providing a clear repayment plan, the KFS helps borrowers manage their cash flow and budget effectively.
  • Prepayment and Foreclosure Rules
    Borrowers often wish to repay their loans early to save on interest costs. The KFS provides information on the prepayment and foreclosure rules, including any penalties or charges that may apply. This transparency allows borrowers to make informed decisions about early repayment and understand the financial implications.

Key Facts Statement (KFS) Disclosure Requirements

The RBI’s Key Facts Statement (KFS) guidelines place significant emphasis on the disclosure of loan terms and conditions, ensuring that borrowers receive all necessary information in a transparent and easily understandable manner. This section outlines the mandatory disclosures, the format and presentation of the KFS, and the timing of these disclosures.

Mandatory Disclosures In The KFS

The KFS must include several mandatory disclosures to ensure that borrowers have a complete understanding of their loan agreements. These disclosures cover all critical aspects of the loan, such as:

  • Interest Rate and Type: Clear specification of whether the interest rate is fixed or floating, along with details of the benchmark rate and margin for floating rate loans.
  • Fees and Charges: Comprehensive listing of all fees applicable to the loan, including processing fees, administrative fees, and any other costs that the borrower may incur.
  • Repayment Schedule: Detailed repayment schedule, including the frequency and amount of each instalment, and a breakdown of the principal and interest components.
  • Prepayment and Foreclosure Rules: Information on the rules and penalties associated with early repayment and foreclosure of the loan.

Format And Presentation Of Key Facts Statement (KFS)

The RBI mandates that the KFS be presented in a standardised format that is easy to read and understand. The document should be written in clear, simple language, avoiding technical jargon that may confuse borrowers. The use of tables and bullet points is encouraged to present information in a structured manner, making it easier for borrowers to grasp the key details.

To enhance readability, the KFS should be divided into distinct sections, each addressing a specific aspect of the loan agreement. This structured approach ensures that borrowers can quickly locate and review the information they need. Additionally, the KFS should be provided in the local language of the borrower, if requested, to ensure comprehensive understanding.

Timing Of Disclosure

One of the crucial aspects of the KFS guidelines is the timing of the disclosures. The RBI requires that the KFS be provided to the borrower at the time of loan sanction. This ensures that borrowers have all the necessary information before they commit to the loan agreement. Furthermore, any changes to the terms and conditions of the loan during its tenure must be communicated to the borrower promptly, with an updated KFS provided if necessary.

Prohibited Practices

The RBI’s Key Facts Statement (KFS) guidelines also address and prohibit certain unfair practices commonly encountered by borrowers. These practices, if unchecked, can lead to borrower exploitation and financial distress. By explicitly prohibiting these practices, the RBI aims to safeguard borrowers and ensure fair treatment across the lending process.

RBI’s Directives On Hidden Charges In KFS

One of the most significant concerns for borrowers is the presence of hidden charges, which can substantially increase the cost of borrowing. The KFS guidelines mandate that all fees be disclosed in the KFS, eliminating the possibility of any hidden costs. This transparency ensures that borrowers are fully aware of the total cost of the loan and can make informed decisions accordingly.

Hidden charges may include administrative fees, processing fees, documentation charges, and other miscellaneous costs. By prohibiting undisclosed fees, the RBI ensures that borrowers are not caught off guard by unexpected expenses.

The guidelines explicitly prohibit banks and financial institutions from levying any additional fees that are not mentioned in the KFS. This provision protects borrowers from being subjected to unexpected charges during the loan tenure. Any changes to the fee structure must be communicated to the borrower in advance, with an updated KFS provided to reflect these changes.

Responsibilities Of Banks And Financial Institutions

Banks and financial institutions are primarily responsible for implementing and adhering to the KFS guidelines. This includes preparing and providing the KFS to borrowers at the time of loan sanction, ensuring that all required information is included, and updating the KFS in case of any changes to the loan terms. Institutions must also train their staff to understand and follow these guidelines diligently.

To facilitate compliance, banks are required to conduct regular internal audits to verify that the KFS guidelines are being followed. These audits should identify any discrepancies or non-compliance issues, which must be rectified promptly to ensure continuous adherence to the guidelines.

RBI’s Role In Monitoring Compliance

The RBI plays a pivotal role in monitoring the compliance of banks and financial institutions with the KFS guidelines. This includes periodic inspections and audits of loan documents and KFS forms to ensure that they meet the prescribed standards. The RBI may also conduct surprise checks and review customer complaints related to loan transparency and KFS adherence.

In addition to direct oversight, the RBI has established a grievance redressal mechanism for borrowers. This allows borrowers to report any non-compliance issues or unfair practices they encounter. The RBI takes these complaints seriously and takes appropriate action against the offending institutions.

Penalties For Non-Compliance With KFS Guidelines

Non-compliance with the KFS guidelines can result in significant penalties for banks and financial institutions. The RBI has the authority to impose fines, issue warnings, and take other punitive actions against institutions that fail to adhere to the guidelines. In severe cases, the RBI may also restrict the lending activities of non-compliant institutions until they demonstrate adherence to the KFS norms.

Impact On Borrowers

The introduction of the RBI’s Key Facts Statement (KFS) guidelines has profound implications for borrowers, particularly those in the retail and MSME segments. By standardising loan disclosures and ensuring transparency, the KFS guidelines enhance borrower understanding and confidence, leading to more informed borrowing decisions and improved financial well-being.

Benefits For Retail Borrowers

Retail borrowers, often comprising individuals seeking personal, home, or auto loans, significantly benefit from the KFS guidelines. One of the primary advantages is the clear and comprehensive presentation of loan terms, including interest rates, fees, and repayment schedules. This transparency empowers borrowers to compare loan offers from different banks and choose the most favourable terms.

Furthermore, the prohibition of hidden charges and additional fees not mentioned in the KFS protects retail borrowers from unexpected financial burdens. By knowing the exact cost of borrowing upfront, borrowers can budget more effectively and avoid overextending themselves financially.

Benefits For MSME Borrowers

MSMEs, which are vital to India’s economic growth, often face challenges in accessing credit. The KFS guidelines play a crucial role in addressing these challenges by ensuring that MSME borrowers receive clear and detailed information about their loans. This transparency helps MSMEs understand their financial commitments better and manage their cash flows more effectively.

Moreover, the guidelines’ emphasis on prepayment and foreclosure rules provides MSMEs with the flexibility to repay loans early without facing prohibitive penalties. This flexibility can be crucial for small businesses looking to reduce their debt burden and reinvest in their operations.

Conclusion

The RBI’s Key Facts Statement (KFS) guidelines represent a significant advancement in promoting transparency and fairness in the lending process for retail and MSME loans. By mandating clear and comprehensive disclosures of loan terms, these guidelines empower borrowers with the knowledge they need to make informed financial decisions. The benefits of the KFS guidelines are far-reaching, enhancing borrower confidence, reducing complaints, and fostering a more transparent lending environment.

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FAQs around Key Facts Statement (KFS)

As per the Reserve Bank of India, the Key Facts Statement (KFS) is a statement of key facts of a loan agreement, in simple and easier to understand language, provided to the borrower in a standardised format.

The Reserve Bank of India’s (RBI) Key Facts Statement (KFS) enhances transparency and customer understanding of financial products, particularly loans and credit facilities. A KFS provides essential details in a simple format, including loan type, amount, tenure, interest rate, fees, repayment terms, collateral, insurance, and grievance redressal mechanisms.

Annual Percentage Rate (APR) in Key Facts Statement is defined as the annual cost of credit to the borrower which includes interest rate and all other charges associated with the credit facility.

RBI defines Key Facts as a legally significant loan agreement with deterministic facts between a Regulated Entity (RE)/a group of REs and a borrower  that satisfy basic information required to assist the borrower in taking an informed financial decision.

All new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers, should comply with the new KFS guidelines.

By Abhinandan, ago
benefits of aadhaar esign

Benefits Of Aadhaar eSign

Introduction

In the digital age, the way we conduct transactions and authenticate our identities has drastically changed. One significant development in India has been the introduction of Aadhaar eSign. This electronic signature service leverages the Aadhaar identity database to provide a secure and convenient method for signing documents. This blog explores the benefits of Aadhaar eSign, its applications, benefits, and how it revolutionizes various sectors.

What Is Aadhaar eSign?

Aadhaar eSign is an electronic signature service that allows individuals to sign documents digitally using their Aadhaar number and an OTP (One Time Password) or biometric authentication. This service is provided by licensed Certifying Authorities (CAs) under the Ministry of Electronics and Information Technology (MeitY).

How Does Aadhaar eSign Work?

The process of using Aadhaar eSign is simple:

  1. Document Upload: The user uploads the document to be signed on an eSign-enabled platform.
  2. Authentication: The user authenticates their identity using their Aadhaar number and OTP or biometric verification.
  3. eSignature Generation: Once authenticated, the eSign service generates a digital signature, which is then applied to the document.
  4. Download: The digitally signed document can be downloaded and shared as needed.

Aadhaar eSign Features

  1. Enhanced Security
    Aadhaar eSign offers a high level of security due to its reliance on Aadhaar-based authentication. The use of OTP or biometric verification ensures that only the rightful owner of the Aadhaar number can sign the document. Additionally, digital signatures are encrypted and tamper-proof, making it difficult for unauthorised parties to alter the document.
  2. Legal Validity
    Aadhaar eSign is legally recognized under the Information Technology Act, of 2000. The signatures generated are legally binding and hold the same validity as handwritten signatures. This compliance with Indian legal standards makes Aadhaar eSign a reliable method for document authentication.
  3. Time-Saving
    Traditional methods of signing documents often involve printing, signing, scanning, and emailing documents, which can be time-consuming. Aadhaar eSign streamlines this process by enabling instant digital signatures. This saves time for both individuals and businesses, allowing for faster transactions and decision-making.
  4. Cost-Effective
    Using Aadhaar eSign eliminates the need for physical paper, printing, and courier services. This not only reduces operational costs but also supports environmental sustainability by minimizing paper usage. For businesses, this cost-saving can be significant, especially when dealing with high volumes of documents.

Applications Across Various Sectors

    1. Banking and Financial Services

In the banking and financial services sector, Aadhaar eSign is used for:

      • Opening bank accounts remotely
      • Loan applications and disbursements
      • Mutual fund investments
      • Insurance policy applications
    2. Government Services

Government agencies utilize Aadhaar eSign for:

      • Issuance of certificates and licenses
      • Filing income tax returns
      • E-procurement processes
      • Digital locker services
    2. Healthcare

In the healthcare sector, Aadhaar eSign helps in:

      • E-prescriptions
      • Patient consent forms
      • Medical records authentication
    2. Education

Educational institutions use Aadhaar eSign for:

    • Online admissions
    • Issuance of digital certificates
    • Student verification processes

Benefits Of Aadhaar eSign Over Other eSign Methods

Aadhaar eSign is a revolutionary method for electronically signing documents, offering significant advantages over other eSign modes:

  1. Zero Procurement Hassle

One of the standout features of Aadhaar eSign is its simplicity. If you have an Aadhaar number linked to your mobile or email, you can sign documents from anywhere, at any time. There is no need to go through the trouble of procuring or purchasing a physical digital signature token, which can be cumbersome and time-consuming.

  1. Accessible and Convenient

Aadhaar eSign is incredibly user-friendly. As long as you have a valid Aadhaar number, a linked mobile or email, and an internet connection, you can sign documents from anywhere in the world. This convenience is unmatched by traditional eSign methods, which may require specific hardware or software.

  1. Mobile Accessibility

Unlike traditional digital signatures that require a laptop or desktop, Aadhaar eSign can be performed on any internet-enabled smartphone or tablet. This is particularly crucial in India, where a significant portion of the population accesses the internet primarily through smartphones. This feature ensures that more people can easily sign documents electronically, regardless of their access to traditional computers.

  1. Legal Security

Aadhaar eSign not only complies with the IT Act but also carries presumptions of validity under the Evidence Act. This dual recognition makes it the gold standard for enforceability in India. Contracts signed using Aadhaar eSign are likely to see faster enforcement, thanks to the strong legal framework supporting this method.

Key Features Of Aadhaar e-Sign Services By AuthBridge Via SignDrive

  • Seamless Integration: SignDrive offers easy integration with existing workflows through APIs, enabling businesses to incorporate e-sign services without disrupting their current processes.
  • Legal Validity: Aadhaar e-Sign is legally valid under the Information Technology Act, 2000, ensuring that digitally signed documents are as valid and enforceable as those signed by hand.
  • User-Friendly Interface: The SignDrive platform is designed to be user-friendly, allowing users to sign documents with just a few clicks. The process involves entering the Aadhaar number, receiving an OTP on the registered mobile number, and using this OTP to complete the signing process.
  • Enhanced Security: SignDrive ensures high levels of security through multi-factor authentication and encryption, safeguarding user data and the integrity of signed documents.
  • Cost-Effective: By eliminating the need for physical signatures, Aadhaar e-Sign significantly reduces the costs associated with paper-based processes, including printing, scanning, and courier services.
  • Time-Saving: The digital signing process is much faster than traditional methods, allowing documents to be signed and processed in real-time, thus speeding up business operations.

How Aadhaar e-Sign Works On SignDrive

  • Document Upload: Users upload the document that needs to be signed onto the SignDrive platform.
  • Aadhaar Authentication: The user enters their Aadhaar number and receives an OTP on their registered mobile number.
  • e-Signature: Upon entering the OTP, the user’s digital signature is generated and attached to the document. 
  • Document Management: The signed document can be downloaded, stored, or shared as required.

Conclusion

Aadhaar eSign is a revolutionary tool that brings multiple benefits, including enhanced security, legal validity, efficiency, and cost savings. Its applications across various sectors demonstrate its versatility and potential to transform how we sign and authenticate documents. As technology evolves and adoption increases, Aadhaar eSign will continue to play a pivotal role in India’s digital landscape, driving the nation towards a more secure and efficient future.

By Siddharth, ago

Merchant Onboarding Risk: A Comprehensive Guide

What Is Merchant Onboarding?

Merchant onboarding involves integrating new merchants or sellers onto a platform, such as an online marketplace, e-commerce site, or payment gateway. This process includes registering the merchants, verifying their information, and approving their accounts so they can begin selling their products or services on the platform. A streamlined onboarding process ensures compliance, mitigates risk, and enables merchants to start operations swiftly. This process not only sets the stage for the merchant’s transactions and interactions within a digital or physical commerce environment but also involves significant checks and balances to ensure security, compliance, and optimal functionality.

Essential Documentation For Merchant Onboarding

To streamline the merchant onboarding process and reduce potential delays, businesses in India should gather the necessary documents and materials beforehand. Being well-prepared can save time and ensure a smoother onboarding experience.

Here’s a list of essential documents and materials businesses should have ready for their merchant onboarding process in India:

1. Business Registration Documents

      • Certificate of Incorporation
      • Articles of Association (AOA) and Memorandum of Association (MOA)
      • GST Registration Certificate
      • Shops and Establishment Certificate (if applicable)

2. Tax Identification Numbers

3. Ownership Information

      • Details about the business’s ownership structure, including information on owners, partners, or directors
      • Personal identification documents for key stakeholders, such as an Aadhaar card, PAN card, passport, or driving licence

4. Financial Statements

      • Recent financial documents, including balance sheets, profit and loss statements, and cash flow statements, provide insight into the business’s financial condition

5. Bank Account Information

      • Details of the business’s bank account, including the account number, IFSC code, and the name and address of the bank

6. Business Licences and Permits

      • Copies of relevant business licences, permits, or certifications required for operation in your industry or jurisdiction, such as FSSAI licence for food businesses or SEBI registration for financial services

7. Business Website and Online Presence

      • Information about the business’s website, online store, or mobile app, including URLs and descriptions of products or services offered

8. Payment Processing History

      • If available, statements or summaries of previous transaction volumes, chargeback rates, and other relevant payment processing history

9. Business Plan and Revenue Projections

      • A comprehensive business plan, including revenue projections and anticipated transaction volumes, particularly important for startups or businesses with limited operational history

10. Compliance Documentation

Any documentation related to compliance with industry regulations or standards, such as:

Having these documents ready can significantly facilitate the merchant onboarding process in India, allowing businesses to begin operations more quickly and efficiently.

Step-by-Step Merchant Onboarding Process

The merchant onboarding process varies by industry and country, adhering to local regulations and law enforcement requirements. However, it generally follows these steps:

1. Processing Stage

2. KYB (Know Your Business) of Merchant

3. Merchant History Check

4. Verifying Ultimate Beneficial Owner (UBO)

5. Risk Assessment

6. Operational Analysis

What Are The Risks Involved In Merchant Onboarding?

The merchant onboarding process comes with various risks that Acquiring Banks, Payment Service Providers (PSPs), and Payment Aggregators (PAs) need to address effectively. Here’s an in-depth look at these risks:

1. Financial Risk

  • Credit Risk: The possibility that a merchant might default on payments or fail to meet financial obligations. Evaluating a merchant’s creditworthiness and financial health is crucial.
  • Chargebacks: Frequent chargebacks can indicate fraudulent activity, poor service, or dissatisfaction among customers, impacting the financial stability of the business.

2. Operational Risk

  • Business Continuity: Assessing the merchant’s ability to continue operations without interruption is essential. Disruptions can affect the supply chain and overall business operations.
  • Process Reliability: Ensuring that the merchant’s operational processes are dependable and consistently meet service standards. This includes timely delivery of goods and services.

3. Reputational Risk

  • Brand Association: The risk that a merchant’s negative reputation or actions will impact the business’s brand image. Poor performance or unethical practices by a merchant can harm the primary business’s reputation.
  • Customer Satisfaction: If a merchant provides poor service, it can lead to dissatisfied customers, negative reviews, and potential loss of business.

4. Regulatory and Compliance Risk

  • Legal Compliance: Ensuring that merchants adhere to all relevant laws and regulations to avoid legal penalties. This includes compliance with industry-specific regulations.
  • Data Security: Verifying that merchants follow data protection regulations to safeguard customer information. This is critical in preventing data breaches and maintaining customer trust.

5. Fraud Risk

  • Transaction Fraud: The risk that a merchant might engage in fraudulent transactions, leading to financial losses for the partnering company.
  • Identity Theft: Ensuring that the merchant’s identity and business credentials are legitimate to prevent identity fraud.

6. Supply Chain Risk

  • Supplier Reliability: The risk that a merchant might fail to deliver goods or services as agreed, disrupting the supply chain.
  • Quality Control: Ensuring that the products or services provided by the merchant meet the required quality standards.

7. Technological Risk

  • System Integration: Ensuring that the merchant’s technology and systems integrate seamlessly with your own to avoid operational disruptions.
  • Cybersecurity: Assessing the merchant’s cybersecurity measures to protect against data breaches and cyberattacks.

8. Contractual Risk

  • Contract Clarity: Ensuring that contracts with merchants are clear, comprehensive, and enforceable.
  • Dispute Resolution: Having clear mechanisms in place for resolving disputes that may arise with merchants.

Mitigating Merchant Risk

1. Due Diligence and Vetting:
Thorough background checks on merchants, including financial health, legal compliance, and reputational standing, are essential for mitigating risks. Third-party verification services can validate merchant credentials and performance history.

2. Continuous Monitoring:
Ongoing monitoring of merchant activities helps detect and address issues promptly. Real-time data analytics can identify potential risks and enable corrective action before problems escalate.

3. Contractual Agreements:
Comprehensive contracts outlining expectations, responsibilities, and liabilities of both parties help manage risks. Regular audits, compliance checks, and penalties for non-compliance should be included in these agreements.

4. Technology Solutions: 
Advanced risk management software and tools can automate risk assessment and monitoring processes. AI and machine learning can predict potential risks and proactively mitigate them, enhancing overall risk management.

5. Training and Awareness
Regular training for employees on risk management practices and raising awareness about potential merchant risks can prevent issues. Knowledgeable staff can recognize and address risks before they escalate.

6. Diversification of Suppliers
Diversifying the supplier base reduces over-reliance on a single merchant, mitigating the impact of any single merchant’s failure on business operations.

7. Regular Audits and Assessments
Periodic audits and assessments ensure ongoing compliance and performance. Identifying and rectifying potential issues early helps maintain high standards.

8. Insurance and Risk Transfer
Insurance options covering merchant-related risks can mitigate financial impacts. Transferring some risks to an insurance provider offers additional protection.

Merchant Monitoring

Ongoing Risk Management

Merchant acquirers of payment service providers (PSPs) must continue risk management efforts even after onboarding a new merchant. If a merchant changes the nature of their business or if there is a sudden change in transaction volume or amounts, the merchant must be re-evaluated for risk. Quick re-evaluation is essential to mitigate potential damage.

Key Merchant Monitoring Practices

Merchant monitoring practices should include checks for:

  • Exceeding transaction thresholds
  • Spikes in transaction activities
  • Changes on the merchant’s website, such as product updates or new links
  • Inclusion of individuals on sanction lists
  • Unusual cross-border transactions
  • Negative media mentions

While automation in monitoring has been largely successful, it comes with challenges, such as false positives. Despite this, automation is generally considered better than manual monitoring. Issues can arise when merchants start selling in new markets or offering new products, as the technology may not always keep pace. This makes the industry increasingly competitive and challenging.

Merchant Onboarding With AuthBridge

Merchant onboarding is a critical process that involves verifying the legitimacy and risk levels of businesses before they are allowed to process payments. AuthBridge offers comprehensive solutions to streamline and secure this process, ensuring businesses meet all necessary compliance standards. Here’s how AuthBridge enhances the merchant onboarding experience:

  1. Streamlined Document Collection and Verification

AuthBridge facilitates the efficient collection and verification of essential documents, such as business registration papers, tax identification numbers, and ownership information. Their automated systems ensure accuracy and reduce the time required for initial verification.

  1. Comprehensive KYC and KYB Compliance

AuthBridge employs advanced Know Your Customer (KYC) and Know Your Business (KYB) protocols to verify the identity and legitimacy of merchants. This includes background checks and ongoing monitoring to prevent fraud and financial crimes.

  1. Enhanced Security Measures

By integrating robust security measures, AuthBridge helps protect against financial crimes like money laundering and terrorist financing. Their systems continuously monitor for suspicious activities and ensure compliance with industry standards such as AML (Anti-Money Laundering) regulations.

  1. Detailed Merchant History Checks

AuthBridge conducts in-depth checks on the merchant’s financial history, including past transactions and dealings. This helps identify any previous issues with fraud or chargebacks, ensuring that only trustworthy merchants are onboarded.

  1. Efficient Risk Assessment

AuthBridge’s risk assessment tools categorize merchants based on their risk levels, ranging from very low to very high. This allows payment service providers to make informed decisions and implement appropriate measures before merchant onboarding.

  1. Ongoing Monitoring and Re-evaluation

Even after onboarding, AuthBridge continues to monitor merchants for any changes in their business activities or risk profiles. This includes tracking transaction volumes, website updates, and compliance with regulatory standards, ensuring that any potential risks are identified and addressed promptly.

  1. Seamless Integration and User Experience

AuthBridge’s solutions are designed to integrate seamlessly with existing systems, providing a smooth and user-friendly onboarding experience. Their automated processes reduce manual intervention, minimize errors, and speed up the overall onboarding timeline.

By Siddharth, ago
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