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RBI constitutes working group on digital lending

The working group will study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place.

January 13, 2021 / 04:35 PM IST
Reserve Bank of India (RBI) Governor Shaktikanta Das.

Reserve Bank of India (RBI) Governor Shaktikanta Das.

The Reserve Bank of India (RBI) on January 13 constituted a working group to study digital lending, including lending through online platforms and mobile apps.

The working group will study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place, the RBI said.

This move assumes significance in the context of recent reports of illegal app-based lenders thriving across the country.

“While penetration of digital methods in the financial sector is a welcome development, the benefits and certain downside risks are often interwoven in such endeavours. A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection,” the RBI said in a release.

Digital lending has the potential to make access to financial products and services more fair, efficient and inclusive. From a peripheral supporting role a few years ago, fintech-led innovation is now at the core of the design, pricing and delivery of financial products and services, the RBI said.

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“Recent spurt and popularity of online lending platforms/mobile lending apps (‘digital lending’) has raised certain serious concerns which have wider systemic implications. Against this backdrop, a Working Group (WG) is being set up to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place,” the RBI said.

On December 23, Moneycontrol published a story on ‘How app-based loan sharks lay death-traps for borrowers’ highlighting the lack of regulation in the segment. There have been a series of reports on borrower suicides following harassment by illegal money-lending apps.

The working group will have both internal and external members, the RBI said. The internal members are: RBI executive director Jayant Kumar Dash; RBI Chief General Manager-in-Charge, Department of Supervision, Ajay Kumar Choudhary; RBI Chief General Manager, Department of Payment and Settlement Systems; P. Vasudevan and RBI Chief General Manager, Department of Regulation, Manoranjan Mishra.

The external members are: Vikram Mehta, Co-founder, Monexo Fintech, and Rahul Sasi, Cyber Security Expert & Founder of CloudSEK.

The working group will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities, identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers.

Also, the group will suggest regulatory changes to promote orderly growth of digital lending and recommend measures for expansion of specific regulatory or statutory perimeter and suggest the role of various regulatory and government agencies, recommend a robust Fair Practices Code for digital lending players, suggest measures for enhanced Consumer Protection and recommend measures for robust data governance, data privacy and data security standards for deployment of digital lending services.

The RBI has asked the group to submit its report within three months.
Dinesh Unnikrishnan
first published: Jan 13, 2021 04:26 pm

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