RBI proposes public repository for digital lending apps: What you need to know

In its third bi-monthly committee meeting for FY24–25, the Reserve Bank of India (RBI) proposed the creation of a public repository for digital lending apps (DLAs) as a measure to address the issue of unauthorised players in the digital lending sector. This initiative aims to tackle the rising concerns about illegal lending practices and enhance consumer protection.

RBI Governor Shaktikanta Das highlighted that the proposed repository will serve as a comprehensive list of digital lending apps that are operated by RBI-regulated entities. These regulated entities will be responsible for reporting and regularly updating information about their digital lending applications in the repository.

By doing so, the repository will provide consumers with a tool to identify and avoid unauthorised lending apps, thereby reducing the risk of falling victim to predatory practices.

Das emphasised that the repository will be continuously updated based on the information provided by regulated entities. This includes adding new digital lending apps that meet regulatory standards and removing those that are no longer in compliance or have been found to be operating unlawfully.

The initiative is part of the RBI's broader digital lending guidelines, which mandate that loan transactions must occur directly between borrowers and lenders, with clear and transparent disclosure of terms. Additionally, the guidelines emphasise the importance of robust grievance redressal mechanisms and the protection of borrower data.

The announcement follows the RBI’s earlier consideration of establishing a Digital India Trust Agency (DIGITA) to further combat illegal lending practices.

Indian regulators have been warning consumers about unreliable digital lending apps that provide rapid loans but come with steep interest rates and aggressive collection tactics. 

Cleaning up the digital lending space

Indian consumers have transitioned from traditional bank branch visits to using mobile phones for borrowing, reflecting a major shift in the lending landscape as internet penetration in India continues to expand. Following the COVID-19 pandemic, many Indians faced financial hardships, and banks reduced their lending.

To fill this gap, online lending apps have become increasingly prominent. These digital lending platforms have proliferated, offering loans quickly but often at high interest rates and employing aggressive recovery practices. Many of these apps do not adhere to the RBI regulations.

Over the following years, numerous reports were filed against these lending apps, highlighting a range of issues faced by consumers. Many users reported experiencing predatory practices, such as exorbitant interest rates and aggressive debt recovery tactics. Complaints included unauthorised deductions, misleading terms, and harassment by collection agents.

In response to the growing concerns over unauthorised lending apps, the central government and the Reserve Bank of India (RBI) instructed Google in 2022 to enforce stricter regulations to curb the proliferation of such platforms. As a result, Google removed 2,500 fraudulent lending apps from its Play Store in December 2023.

The issue was also addressed at the 28th Financial Stability and Development Council meeting held in February this year. During this meeting, Finance Minister Nirmala Sitharaman and other senior government officials discussed the challenges posed by unauthorised online lending apps.

It is projected that the Indian lending tech market will continue to grow and become a $1.3 trillion market opportunity by 2030, fueled by growing internet and smartphone penetration.

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