RBI Seeks Information on NBFCs' Supply Chain Finance Products

The Reserve Bank of India (RBI) has requested details on the supply chain finance products provided by non-banking financial companies (NBFCs) to ensure compliance with regulatory standards. According to sources cited by *Business Standard*, the RBI's Department of Supervision (DoS) has notified several prominent shadow banks, indicating they may need to revise their offerings.

Supply chain finance, often offered by NBFCs as term loans ranging from 30 to 180 days, involves each loan tranche being considered a separate term loan within the overall credit limit set for the borrower. This type of financing is primarily used by MSMEs (Micro, Small, and Medium Enterprises) with seasonal or cyclical business needs.

In light of these developments, the Finance Industry Development Council has called for a meeting to address the issue. MSMEs, which typically do not have capital-intensive business models but require working capital, usually receive financing based on initial credit data.

This regulatory push comes after the RBI issued updated master directions (MD) for NBFC-P2P lending platforms on August 16, 2024. The new guidelines require these platforms to disclose all fees upfront when lending and prohibit them from "matching/mapping" participants within a closed user group, whether sourced directly or via an outsourced agency.

These changes are part of broader reforms by the RBI aimed at streamlining the peer-to-peer (P2P) lending space. Earlier in May 2024, the RBI introduced guidelines that prevent P2P lending platforms from entering into default loss guarantee (DLG) agreements with NBFCs.

Meanwhile, according to a report by *Inc42* for Q4 2023, fintech funding in India dropped by 12% compared to the same period in 2022, totaling $413 million. However, the market size is projected to grow to over $208 billion by 2030.