After the COVID pandemic Digital transaction increased as well as Financial Institutions, banks and NBFCs shift to the lending through digital mediums. It was observed by the Regulatory authority that unfair practices are adopted by the Banks and NBFCs while providing digital Loans. Thus Reserve Bank had constituted a Working Group (WG) on digital lending on January 13, 2021 to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place. The terms of reference and names of the members of the WG are as under:
Terms of Reference
1. Evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities;
2. Identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers;
3. Suggest regulatory changes, if any, to promote orderly growth of digital lending;
4. Recommend measures, if any, for expansion of specific regulatory or statutory perimeter and suggest the role of various regulatory and government agencies;
5. Recommend a robust Fair Practices Code for digital lending players, insourced or outsourced;
6. Suggest measures for enhanced consumer protection; and
7. Recommend measures for robust data governance, data privacy and data security standards for deployment of digital lending services.
After Some time Guidelines on Digital Lending were issued vide Circular DOR.CRE.REC.66/21.07.001/2022-23 dated September 02, 2022 by Reserve Bank of India. The main focus of the RBI on digital lending were on the following points.
1. Loan Disbursal, Servicing and Repayment
2. Payment of Fees, Interest/Charges
3. Disclosures to borrowers
4. Grievance Redressal
5. Assessing the borrower’s creditworthiness
6. Cooling off/look-up period
7. Due diligence and other requirements with respect to LSPs (Lending Service Providers)
8. Collection, usage and sharing of data with third parties
9. Storage of data
10. Comprehensive privacy policy
Recently RBI has taken various actions on several NBFCs for violations of digital lending Guidelines issued by RBI. So each and every NBFC/Bank planning to lending through medium should take following actions.
1. Formulation of strict and rule adhering privacy policies.
2. Management of the RE (Regulatory Entity) is well versed with recent changes in the RBI guidelines and circulars issued by the RBI.
3. Agreement with third party for the data security if data of the RE is managed by the third party.
4. Required disclosure is made to the borrower as per the guidelines issued by RBI.
5. Processing fee, Interest rate, Penal Charges, APR of the RE should not be more than threshold fixed by RBI.
6. Policies and Loan documents of the RE must be approved by the Board of the RE.
7. Fair practice code must be adhered with true letter and spirit.
8. Appointment of Nodal Officer and Grievance Redressal Officer for resolving the issued related to digital lending.
In conclusion, RBI’s guidelines have ushered in a new era of accountability and transparency in digital lending. Financial entities must adhere strictly to these regulations to ensure consumer protection, data security, and fair lending practices. With ongoing scrutiny and enforcement by RBI, the future of digital lending in India hinges on compliance and ethical conduct by all stakeholders.
Author Bio
Greate initiative keep it up Sakeraji