28th November 2021: The Central bank has issued many suggestions to rein in digital lending applications to leverage technology to widen the scope of banking without jeopardizing financial stability and assuring customer security. These suggestions mainly pertain to preventing unlawful digital lending activities via apps. A working group of the RBI has recommended passing a separate law, establishing a nodal agency and self-regulatory organization (SRO). At the beginning of this year, the RBI constituted the panel in the backdrop of mounting worries amid a surge in digital lending activity from January- February 2021. It is handled under the chairmanship of RBI Executive Director Jayant Kumar Dash.
The panel's findings were that out of 1,100 loan applications for Indian android users, 600 were operating illegally. The majority of these apps were discovered to be unlicensed and run by offshore organizations. There were several grievances of harassment lodged by users of these apps. Borrowers had committed suicide due to fraud, and the reports also mentioned that the lenders profited the money offshore unlawfully. The stakeholders of the digital lending sector have formed the Digital Lenders Association of India (DLAI), which lays down a code of conduct for self-regulation and fraudulent activities in practice in the absence of regulations and guidelines by the central bank. The working group's suggestions are centered on three areas: legal and regulatory, technological, and financial consumer protection. Aside from advocating separate laws to supervise such lending, the working group's study recommended that digital lending applications be certified by a nodal body established in consultation with stakeholders. The SRO will develop a recovery-specific code of conduct. It will also keep a 'negative list' of loan service providers on file. The panel also recommended that data be kept on servers in India. As a prerequisite for providing digital lending solutions, several baseline technical and regulatory criteria must be satisfied. It said that loans should be distributed directly to borrowers' bank accounts and serviced through digital lenders' bank accounts. The panel has requested opinions on the report from stakeholders and public members by December 31 on the RBI website.