MUMBAI: Addressing the hidden risks in digital lending that has led to rising incidents of harassment and blackmailing of borrowers, the Reserve Bank of India (RBI) on Wednesday issued the first set of norms for the process. These guidelines will cover the regulated entities, the lending service providers engaged by them and those permitted under any other law to undertake such activities.
The digital lending ecosystem came under government scrutiny in the wake of an increased number of complaints linked with illegal activities of several online platforms and loan apps, particularly those originating from countries like China. Following this, the RBI had set up a working group on digital lending in January 2021; the report was submitted in November 2021.
The RBI said, “Taking into account the inputs received from diverse sets of stakeholders, a regulatory framework to support orderly growth of credit delivery through digital lending methods, while mitigating the regulatory concerns, has been firmed up.”
Releasing the initial set of digital lending norms, the RBI said, “Innovative methods of loan disbursement through digital lending route have gained prominence today. However, this has also led to certain concerns which, if not mitigated, might erode the confidence of the public.”
Unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices are the primary concerns, the RBI said.
Last week, without naming China, Finance Minister Nirmala Sitharaman had said the government was monitoring illegal activities of several digital lending apps, particularly those originating from one country. She was responding to a question on digital apps with links to China lending “unscrupulous loans” in India.