HomeIndustryRBI flags concerns over digital lending apps

RBI flags concerns over digital lending apps

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MUMBAI : Reserve Bank of India governor Shaktikanta Das on Tuesday flagged concerns on the mushrooming of digital lending apps, pointing to the need for regulated entities to increase oversight.

Speaking at the Global Finvest Festival organized by the National Payments Corp. of India, Das said that while these apps have served the needs of various segments, some of them have also raised concerns around usurious interest rates, unethical recovery practices and data privacy issues.

“I would also like to flag certain material concerns regarding the unbridled mushrooming of digital lending apps. The need of the hour is to ensure assurance of safety after following a process of green-lighting (whitelisting) and due-diligence by the regulated entities. The RBI, in association with other relevant agencies, is taking steps to address this issue and take further steps as may be necessary,” he said.

The governor’s statement assumes importance in the wake of recent incidents where a few people who borrowed through these apps took their lives, and last week’s case of a young pregnant woman allegedly run over by the recovery agents of Mahindra Finance which financed her father’s tractor.

In September, the central bank came out with guidelines on digital lending with the stated aim to protect borrowers, allowing all loan disbursals and repayments to be executed only between the borrower account and regulated entities without the interference of lending service providers. Das added that while RBI’s intention is not to penalize fintech players, they must follow the “traffic rules”.

“Let me emphasize that while innovations are very much welcome, they must be responsible and should enhance the efficiency and resiliency of the financial system while benefitting the consumers. Robust internal product and service assurance frameworks, together with fair and transparent governance, will go a long way to safeguard the interest of customers and ensure long-term sustainability of the fintech entities themselves,” he said.

Das, however, assured that RBI will continue to encourage and support innovation. But it expects the fintech ecosystem to focus on governance, business conduct, regulatory compliance and risk mitigation frameworks.

RBI is yet to take a final view on First Loan Default Guarantee (FLDG), Das said. FLDG is a lending model where a lending service provider (LSP) guarantees to compensate up to a certain percentage of default in a loan portfolio of the regulated entity.

Launching three products from NPCI including UPI Lite, credit card on Rupay Card and Bharat Bill Payment (BPPS) cross-border payments, Das said that the retail payments body should be extremely watchful of the rise in UPI transactions. He also said that NPCI should continuously upgrade and upscale itself if it is looking to enable 1 billion UPI transactions every day.

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