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The RBI working group has been advised to submit its report within three months. (Mint)
The RBI working group has been advised to submit its report within three months. (Mint)

RBI panel to study digital lending apps for better regulation

  • The working group will suggest regulatory changes to promote orderly growth of digital lending; recommend measures for expansion of specific regulatory or statutory perimeter and suggest the role of various regulatory and government agencies

Mumbai: The Reserve Bank of India (RBI) on Wednesday said it has formed a working group to study aspects of digital lending activities by regulated as well as un-regulated players, including mobile apps.

The working group has been advised to submit its report within three months.

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The move indicates RBI’s intent to look into the practices followed by the lending apps, even those that do not have a regulated entity like a non-bank financier linked to it. The covid-19 pandemic pushed people to the brink, forcing them to opt for quick loans at the click of a button from lending apps. However, when borrowers were unable to repay these loans, along with a back-breaking interest rate, these companies resorted to coercive recovery tactics.

“While penetration of digital methods in the financial sector is a welcome development, the benefits and certain downside risks are often interwoven in such endeavours," the central bank said.

The committee members comprise four RBI officials and two external experts. It will be led by Jayant Kumar Dash, executive director, RBI and will have Ajay Kumar Choudhary, chief general manager-in-charge, department of supervision; P Vasudevan, chief general manager, department of payment and settlement systems, and Manoranjan Mishra, chief general manager, department of regulation as other internal members. External members include Vikram Mehta, co-founder, Monexo Fintech; Rahul Sasi, cyber security expert and founder of CloudSEK.

“Recent spurt and popularity of online lending platforms/ mobile lending apps (‘digital lending’) has raised certain serious concerns which have wider systemic implications," RBI said, adding that the working will examine all aspects of the sector that will help the central bank with an appropriate regulatory approach can be put in place.

When it comes to most of the lending apps, RBI lacks in regulatory powers since these companies are not registered as non-banking financial companies (NBFCs) but under money lending acts of various state governments.

The working group will thus evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI-regulated entities. Importantly, it will identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers.

The working group, RBI said, will suggest regulatory changes to promote orderly growth of digital lending; recommend measures for expansion of specific regulatory or statutory perimeter and suggest the role of various regulatory and government agencies.

That apart, it will also recommend a robust fair practices code for digital lending players, insourced or outsourced, suggest measures for enhanced consumer protection and recommend measures for robust data governance, data privacy and data security standards for deployment of digital lending services.

This is the third move by RBI in less than seven months relating to lending apps. On 24 June, the regulator had said that banks and non-bank financiers, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the fair practices code guidelines in letter and spirit. Then, on 23 December, RBI cautioned against unauthorised digital lending apps and asked people to verify the antecedents of the company offering loans online or through mobile apps.

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