Digital lending guidelines aim to protect customer interest: RBI dy governor Rao

  • Rao said unrestrained engagement of third parties, mis-selling, data breaches, unfair business conduct, unethical recovery practices and exorbitant interest rates led RBI to regulate the activities

Gopika Gopakumar
Updated9 Sep 2022
On 10 August, RBI came out with digital lending norms to mitigate concerns arising from credit delivery by digital platforms. mint
On 10 August, RBI came out with digital lending norms to mitigate concerns arising from credit delivery by digital platforms. mint

The Reserve Bank of India (RBI)’s new digital lending norms are designed to end regulatory arbitrage, and protect customers, said RBI deputy governor Rajeshwar Rao.

Addressing a gathering at an event organised by Assocham, Rao said unrestrained engagement of third parties, mis-selling, data breaches, unfair business conduct, unethical recovery practices and exorbitant interest rates led RBI to regulate the activities. “The framework is designed to strike a balance between the need for innovative and inclusive systems, while ensuring regulatory arbitrage is not exploited to the detriment of customer’s interests,” he added.

On 10 August, RBI came out with its digital lending norms to curb illegal activities, and mitigate concerns arising from credit delivery by digital platforms. The new rules, applicable only to RBI-regulated entities and loan providers, mandate them to disclose all-inclusive cost of digital loans to borrowers and bar the lenders from automatically increasing credit limits without the borrower’s consent.

Last week, the central bank said entities engaged in digital credit delivery have time till 30 November to comply with the norms for existing digital loans. For new as well as existing customers availing fresh loans, the norms will be applicable with immediate effect.

“As a pre-emptive measure, RBI came out with a circular on digital lending on 24 June, 2020, wherein it was advised that digital lending platforms will disclose the name of bank, NBFC on whose behalf they are providing credit upfront, ensure sanction letters are on the letterhead of the said bank or NBFC and banks/ NBFCs in turn should ensure adequate oversight over digital lending platforms engaged by them,” he said.

The onus of complying with the regulatory guidelines rests with the regulated entities and they will have to ensure loan service facilitators and digital lending apps with which they have outsourcing tie ups functions within the regulatory ecosystem, not just in letter, but also in spirit, he added.

Digital lending is important in India’s growth, especially by supporting cash flow-based lending to small businesses, he said. “Hence even as we appreciate the benefits of digital credit, one needs to take cognisance of the risks involved. These include issues like data privacy breach, disruptive business models, aggressive recovery methods and exorbitant interest rates,” Rao added.

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