The Reserve Bank of India (RBI) on Wednesday formed a working group to study all aspects of digital lending activities to help it implement an appropriate regulatory framework.
The move comes amid rising incidents of harassments related to online lending which lead to some persons committing suicide after they were unable to repay the online money lender. The total number of suicides triggered by harassment by instant app-based lenders rose to six in Telangana.
Last month, the regulator had cautioned people not to fall prey to the unauthorised digital lending platforms and mobile apps.
The lenders charged excessive rates of interest along with additional hidden charges and adopted unacceptable and high-handed recovery methods, reports said. They also misused agreements to access data on the mobile phones of the borrowers.
“Against this backdrop, a working group is being set up 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 RBI said in a statement.
The working group will be chaired by RBI executive director Jayant Kumar Dash.
The other internal members are Ajay Kumar Choudhary (CGM-in-charge, department of supervision, RBI), P Vasudevan (CGM, department of payment and settlement systems) and Manoranjan Mishra (CGM, department of regulation).
The external members are Vikram Mehta (co-founder, Monexo Fintech) and Rahul Sasi (cyber security expert and founder of CloudSEK).
The working group will submit its report within three months.
``While penetration of digital methods in the financial sector is a welcome development, the benefits and certain downside risks are often interwoven in such endeavours," the RBI noted.
As per the Terms of Reference (ToR) for the WG, it has been asked evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI regulated entities, and identify risks posed by unregulated digital lending to financial stability, regulated entities and consumers.
The panel has also been asked to suggest regulatory changes, if any, to promote orderly growth of digital lending.
The panel would also be recommending a robust fair practices code for digital lending players and suggesting measures for enhanced consumer protection.
``This is an excellent starting point, and forms a very promising premise for the times to come. 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’’, Madhusudan Ekambaram, Co-Founder & CEO, KreditBee and Co-Founder, FACE (Fintech Association for Consumer Empowerment) said while commenting on the move.
