A working group constituted by the Reserve Bank of India on digital lending through online platforms and mobile apps has submitted its report. This report is aimed at enhancing customer protection and making the digital lending ecosystem safe while encouraging innovation.
The working group (WG) was set up on January 13, 2021, with Jayant Kumar Dash, Executive Director, RBI as the Chairman. The group has recommended subjecting the digital lending applications to a verification process by a nodal agency, which may be set up in consultation with stakeholders.
Further, the group recommends setting up a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem. An anti-predatory lending policy may be framed by each lender based on the characteristics to be defined by RBI/ proposed SRO.
The group has recommended that in the medium term, the Central Government may consider bringing in legislation to prevent illegal lending activities by introducing the ‘Banning of Unregulated Lending Activities Act’. Research by the working group has shown that 600 out of the 1100 lending apps currently available are ‘illegal’ in nature.
Certain baseline technology standards should be developed when it comes to digital lending apps and compliance with those standards as a pre-condition for offering digital lending solutions. The group recommends that auditable logs should be kept for every action that a user performs on the app and that every fintech app must be signed/ verified in a secured manner.
Data should be collected from the borrower/ prospective borrower with prior information on the purpose, usage and implication of such data and with the explicit consent of the borrower in an auditable way, the group has said in its report. It further opines that all data must be stored in servers located in India.
On the loan servicing front, the group has recommended that all loan servicing, repayments and other such activities should be executed directly in a bank account of the balance sheet lender and disbursements should always be made into the bank account of the borrower.
Some other recommendations:
- Algorithmic features used in digital lending to be documented should ensurenecessary transparency
- Each digital lender to provide a key fact statement in a standardised formatincluding the Annual Percentage Rate
- Use of unsolicited commercial communications for digital loans to be governedby a Code of Conduct to be put in place by the proposed SRO
- Maintenance of a ‘negative list’ of Lending Service Providers by the proposedSRO
- Standardised code of conduct for recovery to be framed by the proposed SROin consultation with RBI.