RBI Sets Up Working Group For Better Regulation Of Digital Lending
RBI regional headquarters stands in New Delhi. (Photographer T. Narayan/Bloomberg)

RBI Sets Up Working Group For Better Regulation Of Digital Lending

The Reserve Bank of India has set up an internal working group to create a regulatory framework for digital lending firms as the recent spike in such loans sparked concerns.

The working group will study digital lending activities in the regulated and unregulated financial sector so that an appropriate regulatory approach can be put in place, according to a statement on the RBI website.

“A recent spurt and popularity of online lending platforms/mobile lending apps (‘digital lending’) has raised certain serious concerns which have wider systemic implications,” the RBI said.

The working group will comprise six members--four will be from within the RBI and the remaining will be external. Jayant Kumar Dash, executive director at the RBI, will head the group that has been advised to submit its report within three months.

Also read: India’s Digital Shylocks Draw The Ire Of Regulator

The terms of reference for the working group include:

  • Evaluation of digital lending activities and assessing the penetration and standards of outsourced digital lending activities in RBI regulated entities.
  • Identifying risks posed by unregulated digital lending to financial stability, regulated entities and consumers.
  • Suggesting regulatory changes, if any, to promote orderly growth of digital lending.
  • Recommending measures, if any, for expansion of specific regulatory or statutory perimeter and suggesting the role of various regulatory and government agencies.
  • Recommending a robust fair practices code for digital lending players
  • Suggesting measures for enhanced consumer protection.
  • Recommending measures for robust data governance, data privacy and data security standards for deployment of digital lending services.

Also read: Loan Recovery Agents: Operating Amid Many Shades Of Grey

The RBI faced criticism after a recent rise in instances of predatory lending and recovery practices by unscrupulous digital lenders. Last month, the Hyderabad police arrested people involved with local lenders after a borrower died by suicide.

Police investigations revealed that a Chinese firm, Liufang Technologies Pvt., has been tying up with small local non-bank lenders to provide small-value loans at usurious rates.

Digital Lenders Association of India, an industry lobby, has introduced a code of conduct for all its members to curb short-term lending and implement fair recovery practices. In June last year, the RBI, too, came out with stricter guidelines for digital lenders. The guidelines focused on bringing in more transparent loan processing and greater control over third-party agencies hired by lenders to recover their loans.

Also read: RBI Issues A Second Warning Against Aggressive Digital Lending Practices

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