Mumbai RBI Deputy Governor Rajeshwar Rao said the new digital lending norms of the Reserve Bank of India (RBI) have been designed to eliminate regulatory arbitrage and protect customers.
Addressing a gathering at an event organized by Assocham, Rao said that uncontrolled involvement of third parties, mis-selling, data breaches, unfair trade practices, unethical recovery practices and exorbitant interest rates prompted the RBI to regulate activities. did. “The framework is designed to strike a balance between the need for innovative and inclusive systems, while ensuring that regulatory arbitrage is not exploited to the detriment of customer interests,” he added.
On August 10, RBI came up with its digital lending norms to curb illegal activities and ease the concerns arising out of credit disbursement by digital platforms. The new rules, applicable only to RBI-regulated entities and loan providers, mandate them to disclose the all-inclusive cost of digital loans to borrowers and prevent lenders from automatically raising credit limits without the borrower’s consent.
Last week, the central bank said entities engaged in digital credit delivery have time till November 30 to comply with the existing digital lending norms. For new as well as existing customers taking fresh loans, the norms will be applicable with immediate effect.
“As a pre-emptive measure, RBI came out with a circular on digital lending dated June 24, 2020, advising that digital lending platform banks shall disclose the name of the NBFCs on whose behalf they are providing credit advances, ensure the sanction letters are on the letterhead of the said bank or NBFC and the banks/NBFCs in turn should ensure adequate monitoring of the digital lending platforms engaged by them.
Regulated entities have the onus to comply with regulatory guidelines and ensure loan service facilitators and digital lending apps, with which they have outsourcing functions within the regulatory ecosystem, not only in letter, but also in spirit , he added.
Digital lending is crucial in India’s growth, especially by supporting cash flow-based lending to small businesses, he said. “Therefore while we appreciate the benefits of digital credit, there is a need to take cognizance of the risks involved. These include issues such as data privacy breaches, disruptive business models, aggressive recovery methods and exorbitant interest rates.
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