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RBI Panel To Examine Digital Lending Pitfalls Amid Rising Complaints

RBI Panel To Examine Digital Lending Pitfalls Amid Rising Complaints

RBI’s working group would evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities

It will also recommend a robust fair practices code for digital lending players beyond the existing norms of the RBI

Last week, four Indian digital lending apps were removed from the Google Play Store for violating the platform’s loan repayment policies

Taking cognisance of the rising cases of harassment related to digital lending platforms the Reserve Bank Of India (RBI) has constituted a working group to suggest regulatory measures to promote orderly growth of digital lending. 

The RBI said that the recent spurt and popularity of online lending platforms and digital loan apps has raised certain serious concerns which have wider systemic implications. Last month, the Reserve Bank had cautioned the public against falling prey to the growing number of unauthorised digital lending platforms and mobile apps. The working group will be chaired by RBI executive director Jayant Kumar Dash and will consist of both internal and external members, who will submit their report within three months.

“Against this backdrop, a Working Group (WG) is being set up to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place,” the central bank said.

Monexo cofounder Vikram Mehta and  CloudSEK founder Rahul Sasi would be the external stakeholders in the group, which will see multiple departments within the RBI working together. 

The group will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities and identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers. It will also recommend a robust fair practices code for digital lending players, insourced or outsourced and suggest better consumer protection measures. 

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. “A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection,” wrote RBI in a statement.

In recent times, beyond harassment in loan recovery, another major issue is the rise of loan apps that demand repayment in as low as 30 days. Last week, four Indian digital lending apps — 10MinuteLoan, Ex-Money, Extra Mudra and StuCred — were removed from the Google Play Store for violating Google’s policy on offering personal loans requiring full repayment in 60 days or less.

For loans from some of these apps, the processing fee is steep, as much as INR 2,000 for a loan of INR 10,000 with tenures under 30 days. Together with other charges including one-off registration costs, borrowers would end up paying, in real terms, interest rates as high as 60% per week, reports claimed.