RBI’s Digital Lending Rules

Just for representation

Introduction:

Digital loans must be credited directly to the bank account of the borrowers and not through any third party. RBI has also mentioned that, digital lending entities and not the borrowers should pay fees or charges payable to lending service providers, in credit intermediation process.

The concern that was mentioned were:

• Unbridled engagement of third parties
• mis-selling
• breach of data-privacy
• Unfair business conduct
• changing exorbitant interest rates.
• unethical recovery practices.

RBI Says:

• RBI’s FSB says, FinTech will help build new business models, applications, processes and products, within an associated material effect on financial markets and the provision of financial services.
• There is no universally acceptable definition of digital lending — FSB said “FinTech credit”, is the credit activity facilitated by electronic platforms whereby borrowers are matched directly with lenders.
• Main components of FinTech credit — ‘peer-to-peer lending’ and ‘loan-based crowdfunding’
• Generally accepted feature of digital ending is that it means ‘access of credit intermediation services majorly over digital channel or assisted by digital channel’.

Need NOW: Balanced approach between innovation and while ensuring data security, privacy, confidentiality and consumer protection.

India’s digital lending:

• Involved giving and recovering loans through lending platforms. Helps in speedy disbursal and lowers costs.
• Lending Service Providers, operate with Non-Banking Financial Companies (NBFCs), who disburse credit to customers.
• There might be chances that these lending platforms can lend to a customer beyond repayment capacity.

Guideline by RBI:

1. All the transactions should be done between the bank accounts of the borrower and the entity. This eliminates the pool of LSP accounts.
2. Lenders must inform the borrower about all the fees, charger and annual percentage rate (APR), in a standardized format.
3. No automatic increase in credit limit can be made without the explicit consent of the borrower.
4. Data collected by the lending partner, should be need based, with borrower’s prior consent and can be audited if required.
5. Must appoint a nodal grievance officer, to deal with fintech and digital lending related complaints.
6. Borrowers can complain to the RBI, if the issue is not resolved by the bank in 30 days.
7. Any lending done should be informed to credit information companies (CICs)
8. BNPL transactions should also be reported to CICs

There are benefits of digital lending

• Financial products and services will be available in a more fair, efficient and inclusive manner.
• FinTech led innovation is the core of design, pricing and delivery of financial products and services.

Issues Presently with Lending Apps:

There is a growing trend of more digital lending platforms and mobile applications as, they charge excessive rates of interest and additional hidden charges. They have also been seen adopting unacceptable and high-handed recovery methods. They misuse agreements to access data on mobile phones of borrowers.

How to solve problems going forward:

1. It is important for RBI to oversee the data collections and retention — to safeguard mass consumer interests, against breach of data, exorbitant interest levels, digital lending frauds, by entities.

2. This reduces roles of third parties and misuse of data.

3. The regulatory body comes into play only to aid in the prudent and sustainable expansion of the digital lending ecosystem while safeguarding consumer interests.