RBI panel suggests steps to broaden digital lending

A new law is envisaged to ban unauthorised lending and a self- regulatory organisation (SRO) would evolve a principle-based regulation of the new age entities, a working group of the central bank has said.

The panel has also suggested that there be a cap on the stacking and flipping of loans by consumers to avoid excess leverage by borrowers through quick reporting. The group also proposed a nodal body be set up to verify and maintain a public register of all digital lending apps (DLAs).

The working group set up under the chairmanship of Jayant Dash, ED, RBI, has also recommended that all balance sheet lending through such digital lending apps be restricted to entities regulated and authorised by the RBI. The report is open for public comments until December 31. As per the findings of the working group, there were approximately 1,100 lending apps available for Indian Android users across more than 80 application stores from January 2021 to February 2021, out of which 600 were fake.

“A nodal agency should be set up which will primarily verify the technological credentials of DLAs of the balance sheet lenders and lending service provider (LSP) operating in the digital lending ecosystem,” the working group report released by the RBI stated.

“The Central Government may consider bringing through a legislation styled as “the Banning of Unregulated Lending Activities (BULA) Act” which would cover all entities not regulated and authorised by RBI for undertaking lending business or entities not registered under any other law for specifically undertaking public lending business,” the committee proposed.

The committee also recommended restricting balance sheet lending to entities regulated by the RBI. It also said that new-age lending products like buy now pay later (BNPL) should be treated as part of balance sheet lending. Entities regulated by the RBI will also have to publish a list of such companies engaged by them on their website.

The banking regulator had constituted a working group on digital lending including lending through online platforms and mobile apps in January this year. The committee was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities. The group also proposed setting up an SRO covering all digital lending apps and lending service providers.