RBI sets up working group to regulate e-platforms, apps offering credit and promote digital lending

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Updated: Jan 13, 2021 7:57 PM

The move is aimed at regulating the sector, which has seen a large number of online lending platforms, majority startups, cropping up in the recent past across models including peer-to-peer, pay later, invoice financing, bank-led digital models, marketplaces, and more, adopted by consumers and enterprise-facing businesses.

The RBI had in December cautioned small businesses and individuals against taking loans through unauthorised digital lending apps.

Amid growing concern around possibilities of digital lending-based financial frauds, the Reserve Bank of India (RBI) on Wednesday set-up a Working Group (WG) “to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players,” the central bank said. The move is aimed at regulating the sector, which has seen a large number of online lending platforms, majority startups, cropping up in the recent past across models including peer-to-peer, pay later, invoice financing, bank-led digital models, marketplaces, and more, adopted by consumers and enterprise-facing businesses. “Recent spurt and popularity of online lending platforms/ mobile lending apps (‘digital lending’) has raised certain serious concerns which have wider systemic implications,” the RBI noted.

The WG would look to evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities, according to an RBI statement. It would also identify risks posed by unregulated digital lending to financial stability, unregulated entities, and consumers will suggest regulatory changes, if any, to promote orderly growth of digital lending. RBI said that the WG will recommend measures, if any, for the expansion of specific regulatory or statutory perimeter and suggest the role of various regulatory and government agencies. Other terms of reference for the WG included recommending a robust Fair Practices Code for digital lending players, insourced or outsourced, suggesting measures for enhanced consumer protection; and recommending measures for robust data governance, data privacy, and data security standards for deployment of digital lending services.

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The WG will comprise of four internal members of RBI including Executive Director Jayant Kumar Dash, Ajay Kumar Choudhary, Chief General Manager-in-Charge, Department of  Supervision, P. Vasudevan, Chief General Manager, Department of Payment and  Settlement Systems, and Manoranjan Mishra, Chief General Manager, Department of Regulation. External members will include Vikram Mehta, Co-founder, of Monexo Fintech, and Rahul Sasi, Cyber Security Expert & Founder of CloudSEK. The WG will have to submit its report within three months.

“Considering the importance of digital lending towards the financial inclusion in the Indian economy on one hand, and the regulations and best practices required to ensure a transparent & favourable ecosystem for all stakeholders on the other, a move like this from RBI is much appreciated,” said Madhusudan Ekambaram, Co-Founder & CEO, KreditBee and Co-Founder, Fintech Association for Consumer Empowerment.

The central bank had in December 2020 cautioned small businesses and individuals against taking loans through unauthorised digital lending apps and had urged borrowers to verify the antecedents of the lenders offering loans online or through mobile apps. In June as well, following complaints against online lending platforms with respect to high-interest rates, lack of transparency in methods to calculate interest, unauthorized use of user data, and more, RBI had said that NBFCs and banks need to state the names of online platforms they are working with.

The digital lending market in India has grown from $33 billion in value FY15 to $150 billion in FY20 and may hit the $350-billion mark by FY23, according to Statista. Among the leading players in the market include Capital Float, Zest Money, Indifi, KredX, BharatPe, Lendingkart, Paisabazaar, and more.

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