The Reserve Bank of India (RBI) is holding extensive consultations with digital lending and consumer associations as it gets closer to finalising the guidelines on digital lending, according to three people aware of the developments.
The regulator has held meetings with the Digital Lenders Association of India (DLAI) as well as the Fintech Association for Consumer Empowerment (FACE) and there will be more discussions over the next few weeks.
“The RBI has reached out to the associations regarding their findings and views on various points, including First Loan Default Guarantee (FLDG) and KYC norms, for digital lenders. They have sought a few responses from the associations and dialogue is ongoing,” said one of the sources on condition of anonymity.
DLAI represents over 80 members, including digital lenders and Buy Now Pay Later (BNPL) players like ZestMoney, Capital Float, Lendingkart, NeoGrowth Credit, Cred and Uni. FACE is an organisation that is focused on voicing concerns of consumers and its members include lenders like Kissht, CredAvenue, KreditBee and Paisa Bazaar.
After the associations submit their responses, the RBI is likely to share its final views on the key norms with the industry before making the guidelines public.
During the last press meet after the Monetary Policy Committee (MPC) meeting on April 8, RBI Governor Shaktikanta Das had said that the regulator is close to finalising the norms and a final announcement of guidelines can be expected in the next one or two months.
"We have received a lot of comments on the recommendations by the working group on digital lending. I believe the examination of those comments has been completed,” he had said.
Deputy Governor M Rajeshwar Rao said that over 650 comments were received in response to the report by the working group on digital lending and a response has been framed on the basis of those, which will be put up for further discussions.
Norms to separate wheat from chaff
The Working Group on Digital Lending led by RBI Executive Director Jayant Kumar Dash had submitted its report in November 2021 recommending norms to curb illegal lending through apps and other digital modes.
The committee was set up in January 2021 following multiple instances of customers being pushed to suicide after dubious apps lend money to unsuspecting customers at high interest rates and used high-handed recovery methods.
The working group has made recommendations on three fronts – legal and regulatory, technology, and financial consumer protection. The recommendations aim at ensuring that customers borrow from only verified and authentic mediums and the fintechs that fall under the purview of these norms include credit and buy-now-pay-later (BNPL) players.
The report also recommended the constitution of a Self-Regulatory Organisation (SRO) for the industry. Moneycontrol learns that both FACE and DLAI have made recommendations to the RBI to become the SRO early this year. DLAI also has a code of conduct in place which was referred to by the working group while formulating the report.
Key areas of concern for RBI
In the report, one of the concerns raised by the working group was around FLDG – a lending agreement wherein the fintech agrees to pay its lending bank or NBFC partner a pre-decided percentage of a customer’s loan amount in case of default.
The report suggests prohibiting regulated entities from entering into FLDG agreements with unregulated entities and highlights that the costs arriving out of such agreements are often passed on to customers in the form of high interest rates. It also suggests capping the maximum FLDG that fintechs can provide.
RBI’s other concern is on KYC practices by digital lenders, more so after the recent incident with Indiabulls Dhani where fraudsters sought loans using PAN cards of other customers and these aberrations went undetected by the company’s KYC process.On April 8, Deputy Governor Rao had said that the regulator is investigating these instances and will deliberate on amendments required to KYC norms to address the loopholes.