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Caution to Lending Apps, Road Ahead – from Reserve Bank of India

Caution to Lending Apps, Road Ahead – from Reserve Bank of India - Corpseed.png


Most of Non-Banking Finance Companies, in the last few years, are working excessively with Digital partners to excel in their business at large. In fact Digital platforms are inevitable to existing and new Non-Banking Finance Companies to do their business across India. Technology is now inevitable to run any business at large scalability level. The way technology has leveraged the process and being widely cost-efficient to run the business, almost all Non-Banking Financial Institutions are moulding their operation digitally. Regulator Reserve Bank of India is aware of this progress in the market hence has published the notification to all the existing Non-Banking Finance Companies dated 24th June 2020 over the Digital Lending Platform, adherence to fair practice code and outsourcing guidelines [Refer:]


However the market player are not much aware of the adherence and implementation of issued notifications and in the other hand, the pure technology company are doing lending business without having valid certificates of registration from the Regulator Reserve Bank of India or backed by any License Entity as guided on the above notification. Even though they are doing finance business like Non-Banking Finance Companies []  to disburse the loan at the market with high-interest rate and other charges, where so many people have been trapped by debt which ultimately even forces individuals to kill themselves and several complaints are been registered at several police station regarding loan cases of a particular company and their means of sanction, disbursement, management and recovery itself been unfair and malpractices, creates the problem at large to public.

Though the recent outburst of cases at Hyderabad, Bangalore and even Gurugram, Delhi NCR and other small locations has created market buzz precisely a negative image of the entire Digital Lending Platform irrespective of backed by a Non-Banking Finance Company or not. In fact, the false player needs to be penalized and punished undoubtedly however genuine players on this market should be supported to scale much more so that unbanked and Banked can feel and exercise the delightful lending facility. 


On a regulatory perspective, Reserve Bank of India has decided to scrutiny all the available Digital Lending platforms to ensure the fair practice code. Reserve Bank of India vide press release dated 13th Jan, 2021 inform the market participant about constitution of the working group on digital lending including lending through online platforms and mobile apps. The working group is mandated to submit their report within 3 months. Actually Reserve Bank of India praises the development of financial products being served through the leverage of available technology to increase the user experience at an optimum level, however, bad practices or malpractice need to be removed from the market so that a clean and fair market can exist is due consideration of this committee. 


Digital lending has great potential to make affordable access of financial products and services more fair, efficient and inclusive as internet penetration and smartphone users are rapidly increasing to support the tech-driven financial products and services however balanced approach needs to be followed so that regulatory framework inspires innovation as well as ensure data security, privacy, confidentiality and consumer protection. Earlier tech is at the supporting role but nowadays it is been a prime instrument to design, pricing and delivery of financial products and services. At no case, do regulations wish to stop this progress however bad players need to be kicked out so that the industry will not be polluted. 

Regulator Team

On the chairmanship of Mr. Jayant Kumar Dash, Executive Director of Reserve Bank of India, followed by Mr. Ajay Kumar Chaudhary, Chief General Manager-in-Charge, Department of Supervision of Reserve Bank of India, Mr. P. Vasudevan, Chief General Manager, Department of Payment and Settlement System of Reserve Bank of India and Mr. Manoranjan Mishra, Chief General Manager, Department of Regulation of Reserve Bank of India are core members of working committee whereas Mr. Vikram Mehta, Co-founder of Monexo Fintech and Mr. Rahul Sasi, Cyber Security Expert and founder of CloudSEK are external members of Working Committee. The working committee will work broadly on evaluation of digital lending activities and assess the penetration and standard of outsourced digital lending activities in Reserve Bank of India regulated entities, identify the risk posed by unregulated digital lending to financial stability, regulated entities and consumer, suggest and recommend regulatory changes and fair practice code, enhanced customer protection and so on. The committee is mandated to provide the report within 3 months. [Refer:] 


This is being welcome step by Reserve Bank of India to remove the unwanted and unauthorized market player from market to place authorized and fully regulatory compliant can stay in market to provide fair, efficient and inclusive financial products and service to public at large.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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