Digital Loan: Important decision of RBI, strict rules issued for giving digital loans.
The Reserve Bank of India (RBI) on Wednesday issued strict norms for digital lending. Under this, the central bank said that digital loans should be deposited directly into the bank accounts of borrowers and not through any third party. The RBI has framed these strict norms to check the increasing malpractices in the digital lending sector.
Apart from this, the RBI said that the fee payable to the credit service providers (LSPs) in the credit intermediation process should not be paid to the borrowers but to the digital lending institutions. While issuing detailed guidelines for digital lending, the RBI mainly mentioned concerns related to unbridled third party affiliations, misselling, data privacy violations, unfair business practices, exorbitant interest rates and unethical recovery practices.
RBI had constituted a Working Group on ‘Digital Lending including Lending through Online Platform and Mobile Application’ (WGDL) on 13 January 2021. The central bank said the regulatory framework has been strengthened to support the systematic growth of lending through digital lending methods, alleviating regulatory concerns. This regulatory framework is based on the principle that the business of lending should be carried on only by such entities which are either regulated by the Reserve Bank or which have been permitted to do so under any other law.
Appointment of officer necessary for complaints
The guidelines state that the institution regulated by the RBI shall also ensure that all credit service providers appoint an appropriate officer for redressal of complaints. This officer will hear complaints related to digital lending. Banks and non-bank institutions shall ensure that the features related to digital lending app products are prominently displayed by those with whom they are doing business. It should contain all the information including the extent and cost of the loan.
