After the Paytm Payment Bank debacle, the Finance Stability and Development Council (FSDC) on Wednesday decided to formulate a strategy to simplify and digitalise KYC (Know Your Customer) process in the financial sector. It has also called for further measures to curb lending by unauthorised lending apps.
The council met in Delhi under the Chairpersonship of Finance Minister Nirmala Sitharman. All financial sector regulators including RBI Governor Shaktikanta Das and SEBI Chairperson Madhabi Puri Buch along with Finance Secretary T V Somnathan and other Secretaries to the Government of India were present at the meeting.
“The FSDC discussed various issues related to formulation of strategy for implementing the decisions of the FSDC and the Union Budget announcements. These, included, prescribing uniform KYC norms, inter-usability of KYC records across the financial sector, and simplification and digitalisation of the KYC process,” said a statement by the Finance Ministry. It was also decided to formulate strategy to kickstart fund-raising by social enterprises through social stock exchanges and to arrest the harmful effects of unauthorised lending through online apps and measures to curb their further spread.
Budget proposal
Finance Minister in her Budget speech for FY 2023-24 had proposed that the KYC process will be simplified adopting a ‘risk-based’ instead of ‘one size fits all’ approach. Accordingly, financial sector regulators will be encouraged to have a KYC system fully amenable to meet the needs of digital India. The criticality of this issue has been heightened after the RBI action against Paytm Payment Bank. The regulator found non-compliance of various norms including KYC in the Paytm Payment Bank.
In the Budget speech of 2019-20, Finance Minister had proposed creation of a social stock exchange (SSE) to facilitate raising money by social enterprises and voluntary organizations. Following this, SEBI Board approved a framework for SSE. Then the Finance Ministry declared zero coupon zero principal instruments (ZCZP) as securities to help many organisations including corporates to utilise their fund marked for social responsibility and also help non-profit organisations to get funds in a more transparent manner. In simple words neither any interest is paid nor is principal repaid under ZCZP. Such a bond is listed on SSE.
Unauthorised loan apps
RBI has shared a list of 442 unique digital lending apps used by the regulated entities with Ministry of Electronics & Information Technology (MeitY) for the purpose of whitelisting and the same was shared with Google. As per the information received from MeitY, during April 2021 – July 2022, Google had reviewed approximately 3,500 to 4,000 loan apps and suspended / removed over 2,500 loan apps from its Play Store. Similarly, during September 2022 – August 2023, over 2,200 loan apps were removed from the Play Store. However, the problem still persists.
Meanwhile, the FSDC considered the domestic and global macro-financial situation and emphasised that the members need to maintain constant vigilance and continue their proactive efforts towards detecting emerging financial stability risks and taking the necessary measures to maintain the resilience of the financial sector.
The FSDC members also decided to strengthen inter-regulatory coordination to further develop the financial sector so that it continues to provide the requisite financial resources for inclusive economic growth, the statement said.