Central bank RBI claims that more transparency can be ensured through LEI and it is very helpful in averting financial crises.
While technology has made people’s lives easier and easier to access services, it has also increased the chances of fraud through unauthorized transactions, phishing, theft etc. Banks and financial institutions have to face many problems due to this in monitoring high risk business. Banks are also facing problems in monitoring the borrowers living outside the country or the state. In such a situation, Legal Entity Identifier (LEI) is being implemented to increase transparency. This can give financial institutions a lot to know about their customers.
Central bank RBI claims that more transparency can be ensured through LEI and it is very helpful in averting financial crises. RBI has decided to use the LEI system for all transactions above Rs 50 crore by entities (non-individuals) through its centralized payment system.
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LEI is the 20 character code
LEI is a 20-character alpha-numeric code developed by ISO. It acts as a proof of identity for a financial entity and helps in compliance with regulatory standards. The borrowers can be easily traced and monitored i.e. will help in reducing the risk of banks and other financial institutions.
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These are the advantages of LEI
- This prevents banks from giving multiple loans against the same property and allows them to know about the history and activities of their customers to reduce the risk of NPAs.
- The increased use of LEI by banks can lead to increased efficiency and cost savings in bank remittances outside the country.
- LEI helps financial service providers reduce financial risk and accelerate data verification.
- Through this, the total borrowings by corporate groups can be measured and the financial profile of any of their units can be easily tracked.
- Through this, it will help to increase international business.
(Article: Rahul Jha, CEO, LEI Register India)