RBI come out with a framework to regulate digital lending
Recently the Reserve Bank of India (RBI) has issued the first set of guidelines to regulate digital lending.
The announcement of RBI’s new norms for digital lending comes at a time when the sector has been reporting increased number of cheating and malpractices. Let’s understand what RBI’s new digital lending rules are and why Central Bank has introduced them.
These guidelines are based on the recommendations of the Working Group on “Digital Lending” constituted by RBI in the year 2021.
The following concerns made it necessary to issue these guidelines:
- Unrestricted Engagement of Third Parties
- Mis-selling of loan / lending instruments
- Data Privacy concerns for the customers
- Unfair Business Conduct
- Exorbitant Interest Rates
- Unethical Recovery Practices
Key provisions of the guidelines-
- All loans will be disbursed only between the borrower’s bank account and the regulated entities. LSPs or any third party will not be involved in this process.
- Any fees etc. paid to LSPs acting as intermediaries in the loan will be paid by the regulated entities and not the borrower.
- The more data required on digital lending apps, the more data will be obtained.
- The regulatory framework is based on the principle that they will be regulated either by the RBI or by entities permitted to do so under any other law.
Digital lending:
- This is the process of taking loan, for which application is made through digital medium. The disbursement and management of such loans is also done through digital channels.
- In this, lending institutions use digital data to lend and connect with customers.
Source – The Hindu
