RBI sets up working group to create a regulatory framework for digital lending platforms

The Reserve Bank of India (RBI) has constituted a ‘Working Group’ to suggest steps to regulate digital lending by online platforms and mobile applications, the central bank said in a press statement. This move comes at a time when several digital lenders are being indicted for imposing unethical and extortionary lending practices.

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

The group has been formed to evaluate and help set up appropriate regulation against unregulated lending entities in the country, including those platforms that do not have Non-Banking Financial Companies (NBFCs) tied to them. According to the RBI, these platforms pose a risk to financial stability, regulated entities, and consumers. The panel has been advised to submit its report within three months.

The Working Group has four RBI (internal) members: Jayant Kumar Dash, (executive director, RBI) Ajay Kumar Choudhary (chief general manager-in-charge, department of supervision) P. Vasudevan (chief general manager, department of payment and settlement systems), and Manoranjan Mishra (chief general manager, department of regulation). The committee will also constitute two external members: Vikram Mehta (co-founder, Monexo Fintech) and Rahul Sasi (cybersecurity expert and founder of CloudSEK). 

In June 2020, the banking regulator had released guidelines for banks, NBFCs, and other non-bank lenders to promptly disclose their names to borrowers for preserving transparency in digital lending. The platforms were also advised to enlist their digital lending partners on their website and adhere to the RBI’s Fair Practices Code guidelines ‘in letter and spirit’. 

Soon after, the RBI faced criticism around issues with predatory lending. Several digital lending platforms harass consumers by charging exorbitant interest rates, misusing agreements to access data on mobile phones, extracting hidden charges from borrowers, and adopting unethical loan repayment methods. 

Unethical loan recovery practices by digital lending platforms have prompted Google to remove at least ten lending apps from the Play Store, according to a Reuters report. Increasing reports of defaulters - who had availed loans from unauthorized digital lending platforms - committing suicide have also underscored the severity of the issue. 

In December 2020, the RBI issued a second press release regarding predatory digital lending platforms where it advised consumers against falling prey to the spurt of unauthorized digital lending platforms and mobile applications. 

The recent move by the apex bank will grant it greater control over the unregulated digital lending sector.