Malpractices by digital lending platforms: RBI announces crackdown; all you need to know

To protect borrowers and curb malpractices by digital lending platforms, the Reserve Bank of India (RBI) on Wednesday announced a list of measures that lenders and their partner platforms will need to follow. The guidelines were formulated after the Central Bank received several complaints against the lending platforms relating to exorbitant interest rates, non-transparent interest calculation methods, harsh recovery measures etc. 

"It has been observed that many digital platforms have emerged in the financial sector claiming to offer hassle-free loans to retail individuals, small traders, and other borrowers. Banks and NBFCs are also seen to be engaging digital platforms to provide loans to their customers,” RBI said, in a statement. 

It added that some NBFCs have been registered with Reserve Bank as ‘digital-only’ lending entities while some NBFCs are registered to work both on digital and brick-mortar channels of credit delivery. 

“Thus banks and NBFCs are observed to lend either directly through their own digital platforms or through a digital lending platform under an outsourcing arrangement," it said.

RBI further observed that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework. 

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The guidelines ask banks and NBFCs to adhere to the Fair Practices Code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services. RBI said that outsourcing of any activity by banks/NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them. 

It has said that digital lending platforms engaged as agents shall be disclosed on the website of banks/ NBFCs. Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the bank/ NBFC on whose behalf they are interacting with him.

RBI warned that any violation in this regard by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously.