The Reserve Bank of India (RBI) had set the deadline for lenders to adopt its digital lending regulations, with the goal of safeguarding borrowers from predatory lending practices.
The guidelines have been announced as a combat strategy against Chinese lending applications that were reported to have harassed clients with “spam” notifications after they failed to repay the money. Some apps even threatened to expose private photos stored on users’ phones.
Through the new guidelines, the RBI hopes to put an end to these abuses and restore consumer trust in digital lending.
In its decision, the RBI prohibited regulated firms from retaining borrowers’ data other than essential information such as name, address, and so on, which is required for loan disbursement and repayment. Furthermore, digital lending applications are not permitted to store borrowers’ biometric information.
On RBI’s digital lending guidelines, Souparno Bagchi, COO, Balancehero India, said that, “RBI’s guidelines on digital lending paves the way towards a secure, inclusive and accessible digital lending ecosystem”. It empowers customers with full transparency about the information & data that is being accessed by the lenders, giving them control over their own personal information. The RBI has also standardised disclosures therefore, enabling customers to make more informed decisions . We anticipate some filtration when these suggestions take effect because it is the responsibility of all companies, including unregulated organisations classified as LSPs (Lending Service Providers), to adhere to these regulations.
Consumer protection, market integrity and a growth conducive environment for players are strengthened through initiatives like these. We believe that through the new guidelines, lending platforms can gain increased customer trust as well as be instrumental in financial inclusion.”
The RBI stated that the rules would apply to all banking and non-banking financial institutions when dealing with their customers, both existing and new customers.
It also stated that lenders must ensure that the rules are followed when outsourcing any banking activity to their partners.
To abide by new digital lending norms for the regulated entities Nageen Kommu, Founder & CEO, Digitap, stated that, “RBI’s guidelines on digital lending is a crucial development in the credit ecosystem, considering the rapid rise of profound credit tools and country’s progressive financial inclusion imperative. The guidelines which aim to tackle concerns like unscrupulous lending practises and involvement of third parties, mis-selling and data privacy. We have witnessed fintech players, making requisite tweaks in their business models to stay compliant with the RBI’s guidelines. Some players have updated their terms of agreements as well as related processes. While the new guidelines have increased the cost of compliance for fintechs, the incumbents have demonstrated a positive adoption. The involved stakeholders understand the potential of fintech in the country’s last-mile, effective credit delivery as well as the need for maintaining a compliant operational environment to usher the healthy and sustainable growth of the sector.
Anil Pinapala, CEO and Founder, Vivifi Finance, said that, “We welcome this move of the new digital lending norms by the RBI. At the core of RBI’s focus with these guidelines is the customer (or borrower). The guidelines ensure transparency in disclosures so that the customers fully understand all the information/data that is being accessed by the lending entities putting them in control of their own data while ensuring the companies follow all the data privacy guidelines. RBI has also standardised the cost disclosures with a uniform KFS that details an all-in APR (Annual Percentage Rate), which factors in all the fees and interest that are being charged to the customers, empowering them with the ability to compare this rate across banks and NBFCs. In other words, it makes it easy for the customers to understand the true cost of credit across lenders and make an informed decision.
Licensed and compliant players will have an edge over Fintechs with other NBFC partnerships and are likely to see rising market share in the future. The RBI wants to ensure that there is a responsibility on the institutions they regulate. For the unregulated entities classified as LSPs (Lending Service Providers), there is almost an equal burden to abide by these rules. As a result, we foresee some level of filtration as these guidelines go into effect. This decision by the RBI will protect the consumer and level the playing field from the customer’s perspective.”