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The Collection Wed, 25 Jun 25 |
Multiple stories, multiple perspectives, one theme worth your time—every week. |
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On 7 May, the Reserve Bank of India (RBI) published a new framework that focuses on… well, itself. Or more precisely, how it conceives and implements regulations for India’s banking and financial sectors.
Its “Framework for Formulation of Regulations” promises greater transparency in rule-making, requiring the regulator to:
Consult with stakeholders and the public before the publication of any new or amended regulation.
Conduct an impact analysis prior to the finalisation of any new or amended regulation.
Periodically review existing regulations for relevance, redundancy, and global best practices.
A few months before that, in February, the Securities and Exchange Board of India (Sebi) also laid down procedures to define and amend its rules in order to make its regulation process more open.
Any regulatory institution inviting more feedback and scrutiny on itself is good news. India’s regulators, after all, haven’t avoided criticism on how they’ve handled certain things over these past few years. Often, well-meaning interventions, designed to protect or streamline, have also stifled innovation, burdened businesses, and, ironically, harmed the very people they were meant to safeguard.
In this week’s edition of The Collection, we look at a few of these instances. For example, last year, the RBI tightened regulations on fintech companies offering unsecured loans, particularly to low-income borrowers—its concern was that many of these fintechs were charging very high interest rates.
In October 2024, the RBI even stopped four non-banks from disbursing loans for charging “usurious interest rates”. But for many in the fintech segment, this felt less like constructive regulation and more like “an exercise in finding fault”.
As the risk of recouping the loan from such customers is higher, fintechs classify them as “high risk” and often levy a higher annualised interest rate of 30–36%.
[…]
The regulator believes customers are charged an inordinately high rate compared to the rest of the market. While this is mathematically correct, the volume of customers served must also count for something. If fintechs will not lend to these people, the risk is that no other lender will, since neither banks nor large non-banks are interested in servicing this segment.
[…]
So, an Indian with a low income needs to approach a fintech. The other options would be to go to a moneylender who charges far higher rates or to go without a loan.
The central bank has since lifted the embargo on all four fintechs.
While mis-selling loans and harassment during loan recovery is certainly a reality in India, the question was: if large banks were to serve the same customer demographic, wouldn’t they end up charging similarly high rates?
To understand this situation further, in a November 2024 story and a subsequent Two by Two episode, we explored what was happening in the unsecured loan sector, how to drive financial inclusion in a way that’s fair to both borrowers and lenders, and what the regulator could do to protect the interests of all players involved.
RBI had better explain why Navi and DMI Finance are locked out of the loan market
The regulator has singled out four non-banks for charging “usurious interest rates, frivolous penalties” even as others are playing by a similar book
Two By Two • 20 |
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The recent moves in building a consultative framework for creating regulations is significant because the RBI isn’t like any other watchdog—it operates on a very independent level. In this 2024 piece, my colleague Arundhati Ramanathan looked at the avenues available to appeal decisions by the RBI, and whether a fair appeals mechanism could go hand-in-hand with the need to preserve the regulator’s independence.
When the RBI comes knocking, who can you turn to?
The orders of those who regulate the stock market, insurance, pension funds, telecom firms, and income tax all allow room for something that the RBI does not
Of course, regulators don’t need to take a step back in every case. Sometimes, there’s an urgent need to step in.
Take the case of mirror trading in India’s stock markets. The practice refers to replicating another trader’s actions in real time. The idea is to mimic the positions of more seasoned traders and reap the same profits as them.
Generally speaking, it’s humanly impossible to execute these trades immediately after the original ones and minimise the price difference. That’s where algorithmic trading, which accounts for 60% of stock-market transactions in India, comes into play.
Yet, there aren’t clear regulations around algorithmic trading platforms, and bad actors are taking advantage of that gap to execute trades which might be legally prohibited.
We (and Sebi) need to talk about mirror trading
The lack of a definition, official position, and regulations around mirror trading is giving rise to an unregulated industry that poses threats to retail investors
Other regulators face challenges, too.
When Ravneet Kaur took over the Competition Commission of India (CCI) in May 2023, we described her path ahead as a “minefield”. A year later, while examining the CCI’s record since her arrival, we found that while things were looking up, there was still much to fix—from persistent staffing issues to sensitive data leaks to cases stuck in an endless loop of appeals.
Can India’s antitrust chief tame the watchdog’s inner demons?
Ravneet Kaur is revitalising the Competition Commission of India, trying to shake off its toothless tiger image—but she must confront a mix of old and new challenges
You can find this week’s entire collection of stories, newsletters, and podcasts below.
Do write to [email protected] with your thoughts and suggestions, or leave a comment on our web or app.
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Rahul leads the promotion and distribution efforts for the journalism produced by The Ken. He works at the intersection of the publication's editorial and business operations.
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