The Evolving Role of General Counsel in Retail Lending BFSIs

The Evolving Role of General Counsel in Retail Lending BFSIs

From being traditional legal advisors focused on complex contract structuring and recovery of legal resources, the position has evolved significantly to also include strategic advisory to BFSI Boards

The role of General Counsel (GC) in the Banking, Financial Services, and Insurance (BFSI) sector has undergone transformative changes in the past decade. From being traditional legal advisors focused on complex contract structuring and recovery of legal resources, the position has evolved significantly also to include strategic advisory services to BFSI Boards. This involves providing proactive risk mitigation advice, evaluating inherent legal implications and advising on new business strategies.

Historical Focus: Project & Infrastructure Financing

Historically, GCs in most banks and Non-Banking Financial Companies (NBFCs) took pride in handling project and infrastructure financing deals. This role typically involved drafting, negotiating, and finalizing extensive documentation and managing high-value litigations for the recovery of large project loans. The sheer size and complexity of the documents made the job exciting, especially in consortium lending. This excitement was often amplified by the involvement of renowned Indian and foreign law firms when projects involved international stakeholders. The list of loan, security, and project documents was extensive, including, but not limited to, the Credit/Loan Agreement (also known as the Common Loan Agreement in consortium lending), Trust and Retention Account Agreement, Escrow Agreement, Concession Agreement, License Agreement, Power Purchase Agreement, Transmission Service Agreement, and Substitution Agreement.

The focus was on attending the Consortium Lenders Meetings or Joint Lenders Meetings/Joint Lenders Forums, and representing the company during the era of S4A, Corporate Debt Restructuring (CDR), and Strategic Debt Restructuring (SDR) for resolving stressed loans. Some GCs were also busy dealing with Enforcement Agency matters in telecom and coal scam cases. This was also a time when the dynamic oversight of regulators and government agencies was not an everyday business concern. There were no Chief Compliance Officers with large teams dedicated to regulatory assurance. The GCs then donned a dual hat, playing a very active role in interpreting all Reserve Bank of India (RBI) / Securities and Exchange Board of India (SEBI) circulars and advising the company. The use of digitization was rarely considered.

Turning Point: Regulatory Scrutiny and Shift to Retail Lending

The turning point arrived in 2015 when the Reserve Bank of India (RBI) initiated the Asset Quality Review (AQR). This exercise aimed to identify and address hidden stress in banks by mandating the transparent recognition of Non-Performing Assets (NPAs). Post the Insolvency and Bankruptcy Code (IBC) in 2016, GCs were actively experimenting with the new law for the recovery and resolution of stressed loans. The “Dirty Dozen” – 12 major corporate defaulters – were identified by the RBI in June 2017, collectively responsible for approximately 25% of the total NPAs in the Indian banking system at that time. Subsequently, crises in the BFSI sector further reshaped the landscape.

Following the crisis of one large infrastructure finance NBFC, both banks and NBFCs adjusted their corporate lending strategies, increasingly shifting their focus towards retail lending and priority sector lending, which are perceived as less risky. The historical, simplified assumption that the legal role in retail lending was restricted to reviewing fairly standardized documents (much simpler than corporate lending documents) was also shattered. With the movement of legal risk in the market and increased regulatory vigilance, GCs began contributing significantly to strategic advisory in both litigation and non-litigation risk resolutions. Any counsel would appreciate that litigation strategies are agnostic to loan size, requiring the same prudence for all retail loans. Ever since, the GC’s role in retail lending within NBFCs/Banks has risen significantly beyond a mere “legal sign-off” requirement.

The Modern General Counsel: Complexity and Compliance

Today, a GC operates in a much more complex, high-risk, fast-evolving, and vigilantly regulated environment. Rapid regulatory changes with the RBI tightening regulations, digital innovation, and heightened customer protection norms have made the GC’s role interestingly challenging. It now demands assurance from the GC that retail lending undertaken by the NBFC/Bank is legally sound, regulatory compliant, fair to customers, and aligned with the entity’s risk guardrails. Apart from their core legal role, GCs must act as compliance gatekeepers at all times. Therefore, the GC of a Bank/NBFC is required to be proactive, tech-savvy, and deeply aware of RBI’s expectations, particularly focusing on areas within the changing regulatory compliance ecosystem, especially in themes of Fair Practice Code, Digital Lending Guidelines, Grievance Redressal, and customer protection.

Data Protection and AI’s Impact

The GC plays a mission-critical role in data protection and privacy, especially as retail NBFCs handle highly sensitive personal and financial data. With the Digital Personal Data Protection (DPDP) Act now in force and the RBI tightening norms around digital lending, the GC’s role has shifted from purely reactive compliance to data governance. The GC must ensure that privacy is not just a checkbox but a core business responsibility, acting as an architect of trust to shield the NBFC from legal risk, financial penalties, and reputational damage.

The use of digitization and AI is contributing to the transformative evolution of how GCs manage legal departments in high-volume environments, particularly as retail NBFCs aspire to grow and increase their Assets Under Management (AUMs).

Digitization, Al and Large Language Models (LLMs).

LLMs like OpenAI’s GPT Models, Google DeepMind’s Gemini, Harvey AI, and Microsoft Copilot for legal have begun to significantly impact the role of the GC by transforming it, particularly in the legal and regulatory environment. LLMs have enabled the role to change from pure legal risk management to that of a strategic, data-informed leader. GCs are now equipped to preemptively model legal risk, simulate outcomes, and deliver real-time insights. LLMs can automate and optimize core legal functions like drafting, redlining, summarizing, highlighting risks, predictive modeling of litigation outcomes, and judge behavior analysis. Smaller legal teams can now handle a greater volume of work. In-house teams have become more agile and tech-augmented, reducing dependence on external law firms.

The use of digitization and AI has significantly increased in the legal functions. Examples of digitization and AI in legal functions include AI-powered Contract Lifecycle Management Systems, which automate drafting, versioning, and approval workflows; extract and analyze clauses; and flag non-standard terms or compliance risks, thereby drastically reducing turnaround time. Other uses include digital dashboards for real-time tracking of litigation exposure, compliance testing to identify regulatory and compliance gaps, early warning signals (identifying products or regions with higher legal risk and recovery focus), litigation management tools for case calendars, filings, notices, and legal fees; and Regulatory Compliance Monitoring Tools to automate monitoring of RBI, SEBI, and IRDAI updates, extract obligations from circulars, map compliance tasks to internal owners, and alert about non-compliances. Privacy Platforms for Data Privacy and DPDP compliance help map personal data across systems, track and manage consent, data subject rights, and breach logs, among others.

However, this has also created new dilemmas. How can LLM outputs be vetted for legal accuracy? Who bears responsibility when LLM-generated advice leads to loss or liability? Can sensitive legal data be inputted into LLMs, thereby increasing the risk of data privacy breaches? Relying on LLM-generated advice without human verification may create the risk of negligence. LLMs are not replacing General Counsels; rather, they are amplifying their role, reshaping them into tech-savvy, AI-literate strategic leaders who are essential in guiding businesses through an increasingly automated and regulated world.

Conclusion: A Strategic Role

As retail lending undergoes a paradigm shift driven by digitization, AI-powered decision-making, and a surge in fintech collaborations, the role of a GC is being fundamentally redefined. They are now at the forefront of the BFSI’s strategy map, embedding foresight into innovation, product design, data integrations, and unmasked risks faced by the entities. In this new arena, the GC serves not just as a legal protector but a strategic advisor orchestrating sustainable growth with compliance, operational agility, and reputational resilience.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.