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Banking | History can help while banning digital lending apps

Just like it happened in the past, we are back to times when we are seeing the mushrooming of entities and apps offering lending (and forex facilities)

September 15, 2022 / 09:43 AM IST
RBI recently issued an alert list of entities not authorised to deal in forex.

RBI recently issued an alert list of entities not authorised to deal in forex.

On September 7, the Reserve Bank of India (RBI) issued an alert list of entities not authorised to deal in forex, and to operate electronic trading platforms for forex transactions. Two days later, Finance Minister Nirmala Sitharaman chaired a meeting on ‘illegal loan apps and outlined multiple steps to prevent operations of such illegal loan apps’.

Both these back-to-back announcements highlight a problem facing governments and financial regulators worldwide. The technology has made it so easy, and relatively costless, to first develop these apps and then offer financial services to the public (via these apps). It is a huge problem for the public to understand the legality of these apps, before they avail these financial services. The authorities on realising that some of these apps are illegal, issue customer alerts and ban lists. But by then it is late for some people who have already availed these financial services.

These events take one back to the history of Indian banking where we see a similar sequence of events. India was always home to many banking organisations before the banking regulation was set up. WE Preston, member of the Royal Commission on Indian Currency and Finance in 1926, that went on to establish the RBI, remarked: “....it may be accepted that a system of banking that was eminently suited to India’s then requirements was in force in that country many centuries before the science of banking became an accomplished fact in England.”

Before Britain, India had moneylenders and indigenous banks which were unevenly spread across the country. After the victory in the Battle of Plassey, British-style banks started developing in India. The three presidency banks were the first to be organised as joint stock companies.