• Recently, the Reserve Bank of India (RBI) Working Group (WG) Committee has made recommendations pertaining to Digital Lending, including a separate legislation to prevent illegal digital lending activities.
  • The RBI constituted a WG on digital lending including lending through online platforms and mobile apps in January, 2021.
  • The panel was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.

Important points:

  • The RBI says lending through digital mode relative to physical mode is still at a nascent stage in the case of banks (Rs 1.12 lakh crore via digital mode against Rs 53.08 lakh crore through the physical mode).
  • Whereas for Non-Banking Financial Companies (NBFCs), a higher proportion of lending (Rs 0.23 lakh crore via digital mode against Rs 1.93 lakh crore through the physical mode) is happening through digital mode.
  • While banks have been increasingly adopting innovative approaches in digital processes, NBFCs have been at the forefront of partnered digital lending.
  • Digital lending apps should be subjected to a verification process by a nodal agency to be set up in consultation with stakeholders.
  • To set up a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.
  • The use of unsolicited commercial communications for digital loans to be governed by a code of conduct to be put in place by the proposed SRO.
  • The maintenance of a ‘negative list’ of lending service providers by the proposed SRO.
  • Disbursement of loans should be directly into bank accounts of borrowers.
  • All data to be stored in servers located in India.
  • Algorithmic features used in digital lending to be documented should ensure necessary transparency.

Way Forward

  • India is on the verge of a digital lending revolution and making sure that this lending is done responsibly can ensure the fruits of this revolution are realized.
  • As several players have access to sensitive consumer data, there must be clear guidelines around, for example, the type of data that can be held, the length of time data can be held for, and restrictions on the use of data.


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