RBI’s much-anticipated regulatory framework for digital lenders provides much-needed clarity, complete with a grievance mechanism and an ombudsman system. The standard is expected to stem the growing burden on borrowers of fraudulent sales, data breaches, loan collection harassment, and high interest rates. The rule is based on the recommendations of the RBI’s internal working group to ensure that loans are strictly made by regulated entities in accordance with national law without the involvement of third parties, thereby eliminating the scope for fraudulent activity.
Issues such as privacy and user consent have recently emerged as controversial issues, and restoring consumer trust will help fintech companies survive and borrowers to make informed lending decisions. It is essential to be able to see from Of course, these are only initial operational guidelines, and more standards may be added as digital lending evolves.
For the time being, the focus was solely on protecting consumer interests, transparency of credit prices and fees, and data protection. The RBI also clarified that loan payments should only be made to the borrower’s bank account, not wallets or prepaid cards, and that all digital loans must be reported to credit bureaus. did. This reduces the risk of excessive leverage and risk build-up within the system. The move also brings parity with credit card issuing banks by prohibiting automatic credit limit increases without the consent of the borrower.
Some other recommendations are currently being considered, but others have not been raised for discussion, such as the need for more rigorous scrutiny of partnerships between banks and digital businesses. The central bank itself has also given some recommendations for government consideration, including passing a law to ban unregulated businesses altogether and rules to combat illegal digital apps. This is just the beginning, and it is a reasonable assumption that as market participants adapt to the new model, we can expect greater scrutiny, as is the case with bank and NBFC regulation. Protecting is a top priority, and until major issues such as the threat of fake credit apps are resolved, the new norm will continue to look promising.