Reserve Bank of India Deputy Governor M Rajeshwar Rao said on Thursday that the recently released digital lending standards are designed to end regulatory arbitrage and protect customers.
Speaking at an event organized by industry body Assocham, Mr. Rao said there had been unbridled third party involvement, notifications, data privacy breach, unethical recovery practices and exorbitant interest rates recently which had prompted the Reserve Bank of India to regulate the activities.
On August 10, the Reserve Bank of India came out with digital lending standards after extensive consultations and last week asked the industry to implement those standards by November this year.
Some players in the fintech industry have expressed concerns that rules on lending will affect their operations.
“The framework is designed to balance the need for an innovative and comprehensive system while ensuring that regulatory arbitrage is not exploited to the detriment of client interests,” said Mr. Rao.
He added that the rules place responsibility directly on the regulated entities on whose behalf the apps are lending.
“…they will have to ensure that the loan service facilitator and the digital lending applications they have external links to, operate within the regulatory ecosystem not only in letter but also in spirit,” said the deputy governor.
He said that from now on, passing recommended legislation banning lending by unauthorized entities and creating a self-regulatory organization for digital lenders would help the industry.
The General Manager said that digital lending is playing an important role in India’s growth especially by supporting cash flow based lending to small businesses.
Mr. Rao said the regulatory challenge is to ensure that innovation continues in the industry, while at the same time ensuring that the interests of the customer are not compromised.
Rao said credit deepening is the bedrock of financial inclusion and described access to official credit as a force multiplier.
After the successes with bank accounts – with 78 percent of adults now owning a bank account, versus 53 percent in 2014 – we need to ensure that people have adequate credit now, which will enhance the quality of financial inclusion.
He said that in the absence of formal credit, people have to rely on unsustainable informal credit or personal equity.
(Except for the headline, this story has not been edited by the NDTV crew and is published from a syndicated feed.)