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Summary: RBI report on regulating digital lending and curbing the menace of predatory lending apps

Read the recommendations made by the working group set up by the RBI to study all aspects of digital lending.

digital lending

Over the last year, hundreds of unauthorised digital lending apps have popped up on Google’s Play Store targeting vulnerable Indian borrowers, charging them exorbitant interest rates, and resorting to extortion and blackmail tactics to collect payments. In more than a few cases, these practices have resulted in borrowers committing suicide. Generally, third-party loan marketplaces and apps which work with regulated banks and non-bank lenders have to follow strict guidelines on interest rates and collection practices, but many of the predatory lending apps that have emerged in the last year either work with small non-bank lenders, which are licensed by the RBI, or they work outside any rules or regulatory framework. Against this backdrop, the Reserve Bank of India constituted a Working Group (WG) in January to study all aspects of digital lending so that an appropriate regulatory approach can be put in place. Here is a summary of the recommendations and suggestions made by the working group in its extensive report. The recommendations are concrete actions points, whereas the suggestions would require wider consultation with stakeholders and further examination by the regulators and government agencies, the report said. Legal and Regulatory Recommendations Calibrating existing regulations Balance sheet lending should only be done by authorized entities: Balance sheet lending through digital lending applications (DLAs) should be restricted to entities regulated and authorized by RBI or entities registered under any other law for specifically undertaking lending business. (Recommendation) Other authorized lenders may adopt guidelines consistent with RBI's: Regulatory bodies for other authorized lenders such…

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