Last Updated : Jun 24, 2020 05:56 PM IST | Source:

RBI instructs lenders to adhere to fair business practices

The central bank says it has received complaints of exorbitant interest rates, harsh recovery measures, and unauthorised use of personal data by lending platforms.

The Reserve Bank of India has asked banks and non-banking finance companies (NBFCs) to strictly follow its business practices code and outsourcing norms while lending, warning that any violation will amount to a serious transgression.

A bank or an NBFC will have to prominently display on its website the names of its agents, the central bank said in a notification issued on June 24.

Agent platforms working for a lender also need to tell customers on whose behalf they are working. Further, a sanction letter should be issued to the customer on the lender’s letterhead. A copy of the loan enclosures has to be provided to the borrower at the time of sanction or disbursal of a loan, the RBI has said.


"Although there are various control measures prescribed in the outsourcing guidelines and fair practices code, there had been a void space of non- transparency and instances of violations of the extant regulations," said Sunil Lotke – Chief Officer – Legal, Compliance & Secretarial, U GRO Capital​.

The norms issued by the regulator acknowledged the significance of transparency in the digital credit intermediation, he said.

The central bank’s notification comes at a time when India is seeing an emergence of multiple digital lending platforms. These startups extend loans directly or through partnerships with banks and NBFCs.

While some of the NBFCs only have a digital presence, others work both digitally and through brick and mortar branches.

The central bank said it received several complaints against lending platforms, primarily related to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behaviour.

Banks and NBFCs, irrespective of whether they lend through their digital platform or through an outsourced platform, must adhere to the Fair Practices Code guidelines in letter and spirit.
First Published on Jun 24, 2020 05:56 pm