Will RBI’s proposed repository of digital lending apps curb the practice of online frauds?

Reserve Bank of India (RBI) Governor Shaktikanta Das announced Thursday that the central bank will create a public repository of digital lending apps (DLAs) deployed by regulated entities, i.e., banks and other financial institutions. This means any digital lending app deployed by a bank or non-banking financial corporation (NBFC) must be part of the repository.

“To address the problems arising from unauthorised digital lending apps (DLAs), the Reserve Bank proposes to create a public repository of DLAs deployed by its regulated entities,” said Shaktikanta Das while announcing the monetary policy report.

Regulated entities (REs) will be required to report and update information about their DLAs in this repository. This measure will help consumers identify unauthorised lending apps.

The move holds considerable significance given the prevalence of illegal lending apps, which prompted the government to crack down on 94 such illegal apps in February last year. 

Afterwards, RBI revoked the ban on some of these apps once they proved they were regulated. 

Read this Livemint article for details.

From time to time, a number of Indian investors and depositors have fallen prey to online frauds and scams due to a lack of awareness and fewer regulations, among other reasons.

The RBI’s annual report in May this year revealed that online fraud cases spiked by 708 per cent over the past two years. In several cases, gullible investors lost their life savings to online fraud conducted through some app or website.

Recently, two senior citizens in Ahmedabad collectively lost around ₹3 crore in two separate fraud instances, while a Septuagenarian in Bengaluru lost his life's savings to a Whatsapp scam.

Circular on digital lending

Notably, RBI released a circular in September 2022, which mentioned a set of guidelines for digital lending. It stipulated that banks cannot absolve themselves of responsibility merely because they had an outsourcing arrangement with a digital lending app. 

The RBI advised regulated entities (i.e. banks) to ensure that these apps (whether of the bank or the lending service provider engaged by the bank) follow the guidelines mentioned in the circular.

Higher frequency of reporting credit information

The RBI also proposed increasing the frequency of credit information reporting by banks to credit information companies (CICs) to a fortnightly basis or at shorter intervals.

The availability of accurate credit information is important for both banks and borrowers. Currently, banks report credit information to CICs on a monthly basis. 

With the new proposal, borrowers will benefit from faster updation of their credit information, particularly when repaying loans.