Law to Regulate Digital Lending : RBI

Recently the RBI Working Group on “Digital Credit” has considered enacting a law to ‘Regulate Digital Lending’.

The Group on Digital Lending has recommended enactment of a separate law to monitor digitally disbursed loans in India, including lending through online platforms and mobile apps.

Other key recommendations include: 

  • A nodal agency and regulatory body should be set up to verify the technical credentials of lending agencies through digital medium.
  • Legislation should be made to check illegal lending activities by enacting the Prohibition of Unregulated Lending Activities Act.
  • Compliance with the laid down basic technology standards should be a pre-condition for providing loans through digital medium.
  • Data must be stored in servers located in India.
  • An “anti-predatory lending policy” should be formulated by each lender. This policy should be based on the features to be defined by RBI.
  • Digital lending is the process of offering loans for which application, disbursement and management are done through digital means only. In this, lenders use digital data to make informed loan decisions and establish intelligent customer interactions.

There are three main agents in this system:

  • RBI-regulated entities, such as banks and non-banking financial companies (NBFCs)
  • Other regulated entities and,
  • Unregulated entities including third-party service providers.

Various issues related to digital lending include-

  • Unauthorized digital lender.
  • Violating data privacy through abuse of agreements to access data on mobile phones
  • High interest rates and aggressive recovery of loans.

Source – The Hindu

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