The internal working group set up by the Reserve Bank of India (RBI) on November 18 submitted its report prescribing regulations and suggestions to enable growth and regulate the digital lending ecosystem.
The working group was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities. The report’s thrust has been on enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation, RBI said in a release.
Some of the gists of the recommendations include:
The working group recommends subjecting the digital lending applications to a verification process by a nodal agency to be set up in consultation with stakeholders. In addition, setting up a self-regulatory organisation covering the participants in the digital lending ecosystem, separate legislation to prevent illegal digital lending activities.
The panel says the disbursements of loans shall happen directly into the bank account of borrowers and disbursement and servicing of loans only through bank accounts of the digital lenders.
All data should be stored in servers located in India, and data collection to happen with the prior and explicit consent of borrowers with verifiable audit trails.
The panel recommends that each digital lender provide a crucial fact statement in a standardised format, including the annual percentage rates. Further, Use of unsolicited commercial communications for digital loans is to be governed by a Code of Conduct to be put in place by the proposed SRO.
The proposed SRO shall maintain a negative list of lending service providers and a standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.