The Reserve Bank of India (RBI) said that it will come out with a unified regulatory framework on connected lending for all regulated entities given that the “extant guidelines on the issue are limited in scope and are not applicable uniformly to all regulated entities.”
“It has been decided to come out with a unified regulatory framework on connected lending for all regulated entities of the Reserve Bank. This will further strengthen the pricing and management of credit by regulated entities,” Governor Shaktikanta Das said as a part of the Statement on Developmental and Regulatory Policies.
The central bank will issue a draft circular in this regard for public comments.
Connected lending or lending to persons who are in a position to control or influence the decision of a lender can be of concern, if the lender does not maintain an arm’s length relationship with such borrowers, RBI said, adding that such lending can involve moral hazard issues leading to compromise in pricing and credit management.