A working group set up by the Reserve Bank of India (RBI) has proposed stricter norms for digital lenders. The recommendations include subjecting digital lending mobile and other applications (apps) to a verification process by a node agency to be set up in consultation with stakeholders and setting up a self-regulatory organisation (SRO) covering the participants in the digital lending ecosystem.
The RBI had constituted the working group on digital lending including lending through online platforms and mobile apps on 13 January under the chairmanship of Jayant Kumar Dash, Executive Director, RBI.
The RBI set up the working group in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.
Legislation mooted to curb illegal lending
The RBI working group has recommended separate legislation to prevent illegal digital lending activities. Besides, the committee has proposed the development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
More importantly, the working group has said disbursement of loans directly into the bank accounts of borrowers; disbursement and servicing of loans only through bank accounts of the digital lenders.
It has also stipulated data collection with the prior and explicit consent of borrowers with verifiable audit trails. All data should be stored in servers located in India, the panel has said.
Other key proposals
Other recommendations include the use of algorithmic features used in digital lending to be documented to ensure necessary transparency. The RBI panel also recommended that each digital lender needs to provide a key fact statement in a standardised format including the annual percentage rate.
Further, the working group has suggested that the use of unsolicited commercial communications for digital loans be governed by a code of conduct to be put in place by the proposed SRO and Maintenance of a ‘negative list’ of Lending Service Providers by the proposed SRO.
Digital lenders need to work on a standardised code of conduct for recovery that will be framed by the proposed SRO in consultation with RBI, the panel said. The RBI has sought comments from stakeholders till 31 December on the working group recommendations.