In recent years, banks` responsibility for protecting customer data has increased, whether due to the increased care required under the Information Technology Act 2000 in conjunction with the Information Technology (Reasonable Security Practices and Procedures) Rules 2011, or due to the global harmonization required by the European Union`s General Data Protection Regulation. In India, the Personal Data Protection Act 2019 (PDP Act) has also been submitted to Parliament for consultation. In addition, the Ministry of Electronics and Information Technology has developed a framework to regulate non-personal data. If the data relates to customer identification, additional guidelines from the Unique Identification Authority of India, NPCI and guidelines issued periodically by the RBI apply. The Basel III framework imposes two minimum liquidity standards: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). While the LCR promotes banks` short-term resilience to deal with possible 30-day liquidity disruptions, the NSFR requires banks to finance their operations over a period of up to one year with stable funding sources. The first has been implemented in India since 1 January 2015, the second – defined as the ratio of stable funding available to stable funding required – has been effective since 1 April 2020. The Indian banking system is mainly governed by the Banking Regulation Act of 1949. The RBI is the central bank of India and also the main regulator of banks.
There are different types of banks, such as public, commercial, investment and cooperative banks. Any company wishing to engage in banking business must obtain a license from the Reserve Bank of India (RBI). The 2016 Insolvency and Bankruptcy Code (IBC) aims to consolidate the existing framework by creating a uniform insolvency and bankruptcy law. The regulation of a country`s banking sector reflects its priorities and financial landscape. In the case of India, the Reserve Bank of India`s approach was to prioritize stability and financial inclusion. The Reserve Bank of India (RBI) recently announced a new regulatory framework for digital lenders in India that will be implemented with immediate effect. Under the new guidelines, digital lending operations can only be conducted by companies regulated by the central bank or authorized by law. RBI`s intervention addresses concerns about lending through digital lending methods in India and addresses sensitive issues such as uncontrolled involvement of third parties, abuse of data breaches, unfair business conduct, exorbitant interest rates, and unethical collection practices. The RBI said on Tuesday it had decided to adopt a simple four-tier regulatory framework for municipal cooperative banks (UCBs) based on deposit size to boost its financial strength. An expert committee headed by former RBI Deputy Governor N S Vishwanathan had made a number of recommendations to strengthen UBCs. The new regulatory framework focuses on the digital credit ecosystem of RBI regulated entities (REs) and their contractual credit servicers (PSRs) to expand various authorized credit facilitation services.
For supervised entities, the framework includes requirements that should be implemented immediately. With regard to technology and data requirements, the framework provides, inter alia: It should be noted that in January 2021, the RBI established a working group on «digital lending, including lending via online platforms and mobile applications» and that this new regulatory framework was proposed by the same. While some recommendations under the framework were accepted for immediate implementation, others were approved in principle, but require further investigation. Some recommendations have been put on hold and await wider stakeholder participation. In this article, Varsha Jhavar, graduate in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the legal framework for banking regulation in India What are the legal and regulatory restrictions on transactions between a bank and its subsidiaries? What constitutes an «affiliate» for this purpose? Briefly describe the range of activities permitted and prohibited for financial institutions and indicate whether the classification of these activities has changed. In accordance with Annex I, the framework therefore applies to a large extent to supervised entities and credit servicers mandated by them. In accordance with annexes II and III, other authorized entities may be governed by rules based on the recommendations of the working group; while the regulation of companies outside the scope of the Act would require further scrutiny by the Government of India. The decision-making process in banks is participatory and is conducted in accordance with the procedural guidelines for boards of directors and shareholder meetings set out in the CA. In addition, the RBI is expected to issue corporate governance guidance for regulated firms in the near future to align the current regulatory framework with global best practices while taking into account the context of the domestic financial system. To ease concerns about lending through digital lending methods, the Reserve Bank of India (RBI) has put in place a regulatory framework for digital lending platforms.