RBI releases report of working group on digital lending through online platforms and mobile apps

The Reserve Bank of India’s working group on digital lending using online platforms and mobile apps has presented its report. The goal of this paper is to improve customer safety and make the digital lending ecosystem more secure while also fostering innovation.

The working group (WG) was established on January 13, 2021, with RBI Executive Director Jayant Kumar Dash as its Chairman. The group suggests that digital financing applications be subjected to a verification process by a nodal body, which may be established in conjunction with stakeholders.

In addition, the group suggests that a Self-Regulatory Organization (SRO) be established to cover all participants in the digital lending ecosystem. Each lender may develop an anti-predatory lending policy based on the features to be outlined by RBI/proposed SRO.

The organization suggests that the Central Government consider enacting legislation to curb illicit lending activities in the medium term, such as the ‘Banning of Unregulated Lending Activities Act.’ According to the working group’s research, 600 of the 1100 loan apps now accessible are ‘illegal.’

When it comes to digital lending apps, some baseline technical standards should be defined, and compliance with those standards should be a requirement before providing digital lending solutions. Every activity a user does on the app should be auditable, and every financial app should be signed/verified in a secure manner, according to the organization.

According to the group’s assessment, data should be gathered from borrowers/potential borrowers with advance notice of the data’s purpose, usage, and implications, as well as the borrower’s explicit consent in an auditable manner. It goes on to say that all data should be stored on servers in India.

In terms of loan servicing, the group recommends that all loan servicing, repayments, and other similar operations be performed directly in a bank account of the balance sheet lender, with disbursements always made to the borrower’s bank account.

Other suggestions include:

1. The documentation of algorithmic characteristics employed in digital lending should offer the essential transparency.

2. Each digital lender must submit a key fact statement in a standardized manner, which must include the Annual Percentage Rate.

3. The proposed SRO will establish a Code of Conduct for the use of unsolicited commercial communications for digital loans.

4. The proposed SRO will keep a ‘negative list’ of Lending Service Providers.

5. The proposed SRO will draught a standardized code of conduct for recovery in cooperation with the RBI.

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