The Reserve Bank of India (RBI) released a set of new guidelines in September last year for digital lending. These guidelines are applicable to the existing borrowers as well as the new customers borrowing loans.
The banking regulator gave time till November 30 to put in place adequate systems to ensure that existing digital loans comply with the guidelines.
These guidelines are aimed at protecting customers’ interest and emphasise on consent, security, and privacy.
Although these guidelines got a thumbs up from industry players for bringing transparency and protecting consumers’ interest, concerns over unregulated lending and mis-selling, among others, remain.
It is important to note that even RBI Governor Shaktikanta Das, in October last year, said that while technology has made financial entities more efficient, it has led to unregulated players getting backdoor access to the financial sector.
Concerns relating to unregulated lending
While talking about the problems faced by fintech lenders, Avinash Godkhindi, CEO and MD at Zaggle, said that the main concern with lending has been around mis-selling, breach of data privacy, unfair business conduct and charging of exorbitant rates.
“The mis-sell and unfair business conduct has largely happened on illegal apps and these should be clamped by platforms which host mobile apps. I am sure the government is working closely with these platforms to identify and ban such apps,” he said.
Sugandh Saxena, CEO of Fintech Association for Consumer Empowerment (FACE), while sharing her views on RBI’s digital lending guidelines, raised concerns over unregulated lending.
“RBI digital lending guidelines are comprehensive enough for the regulated ecosystem to advance customer protection and lay out the perimeters of the partnership between REs (regulated entities) and LSPs (lending service providers). However, we know all too well about unregulated lending, off-line or digital and dealing with them requires a much more extensive legal and institutional framework, as RBI has proposed in the Banning of Unregulated Lending Activities (BULA) and DIGITA and so forth,” says Saxena.
Some believe that a lot more clarity is needed pertaining to digital lending regulations because of their novelty.
“The guidelines that have been released by the RBI are sufficient, but there is a lot more clarity expected from the regulator on various matters and rightly so, because digital lending is a novelty for both the market participants and the regulator,” said Vivek Iyer, Partner and Financial Services Risk Leader at Grant Thornton Bharat.