RBI forms working group to evaluate digital lending

The Reserve Bank of India (RBI) on Wednesday announced the setting up of a working group (WG) on digital lending, including through online platforms and mobile apps. The committee will be responsible for suggesting specific regulatory measures in the realm of digital lending, among other things.

The move is the latest in the central bank’s attempt to tackle fly-by-night lending apps which have been offering digital loans to underserved customers. Of late, these platforms have come under the regulator’s glare for their adoption of coercive means of loan recovery.

The RBI said that 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.

“A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection. Recent spurt and popularity of online lending platforms/ mobile lending apps (‘digital lending’) has raised certain serious concerns which have wider systemic implications,” the regulator said. The group has been asked to submit its report within three months.

The WG will consist of both internal and external members. The internal members are RBI executive director Jayant Kumar Dash, chief general manager (CGM)-in-charge of the department of supervision Ajay Kumar Choudhary, and CGMs P Vasudevan and Manoranjan Mishra. The external members are Vikram Mehta, co-founder of peer-to-peer (P2P) lending platform Monexo Fintech and Rahul Sasi, cybersecurity expert and founder of digital risk monitoring firm CloudSEK.

The group will 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.

It will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI-regulated entities. It will also be tasked with identifying risks posed by unregulated digital lending to financial stability, regulated entities and consumers and suggest regulatory changes, if any, to promote the orderly growth of digital lending.

Further, the WG will be expected to recommend measures, if any, for expansion of specific regulatory or statutory perimeters and suggest the role of various regulatory and government agencies. It shall also recommend a fair practices code for digital lending players, insourced or outsourced, and suggest measures for enhanced consumer protection. In addition, the recommendation of measures for robust data governance, data privacy and data security standards for deployment of digital lending services will come under the group’s purview.