RBI panel moots law to regulate digital lending

• IAS NEXT, Lucknow
• 20, Nov 2021

A Reserve Bank of India (RBI) Working Group (WG) on digital lending, including lending through online platforms and mobile apps has submitted its recommendations.

Key recommendations:

1. A separate legislation should be enacted to oversee such lending.
2. Setup a nodal agency to vet the Digital Lending Apps.
3. A Self-Regulatory Organisation should be set up for participants in the digital lending ecosystem.
4. Develop certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
5. Disbursement of loans should be made directly into the bank accounts of borrowers and servicing of loans should be done only through the bank accounts of the digital lenders.
6. All data collection must require the prior consent of borrowers and come ‘with verifiable audit trails’ and the data itself ought to be stored locally.

Benefits of digital lending:

• Digital lending has the potential to make access to financial products and services more fair, efficient and inclusive.
• From a peripheral supporting role a few years ago, FinTech-led innovation is now at the core of the design, pricing and delivery of financial products and services.

Need of the hour:

A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection.