RBI’s New Purview
The RBI categorized digital lenders into three groups while establishing the rules.
- Those organizations that are under RBI regulation and have a license to do lending operations.
- Those organizations that are not under RBI regulation but are permitted to conduct lending under other statutory or regulatory provisions.
- Those organizations that lend without regard to any law or regulatory requirements.
The regulatory framework of the central bank is concentrated on the digital lending ecosystem of regulated firms and the LSPs used by them to extend different legal credit facilitation services. The lenders in the other categories are exempt from the new legislation; therefore, they are free to develop suitable criteria for digital lending based on the working group’s recommendations.
Digital Lending and its Regulation
A remote and automated lending procedure known as “digital lending” makes extensive use of seamless digital technology for customer acquisition, the credit assessment, loan approval, payout, recovery, and related customer care. The Reserve Bank of India (RBI) established a framework to control online lending. It is disbursing and collecting loans via websites or mobile apps. It facilitates fast disbursal and lowers costs. However, these platforms frequently engage in risky behavior by lending to borrowers who cannot repay the money. The Reserve Bank of India (RBI) recently established a framework governing the nation’s digital lending market. The RBI launched a working group on digital lending, including online platforms and mobile apps, in January 2021. The panel was established as a result of worries about ethical business practices and customer protection that have emerged as a result of the boom in digital lending activity. Digital lending is one of the fintech industries in India. It has grown significantly from a volume of US$ 9 billion in 2012 to almost US$ 110 billion in 2019.
Furthermore, it is anticipated that by 2023, the digital lending market will have grown to about US$350 billion. Small borrowers without a history of credit history who conventional financial institutions don’t cater to, are among its clients in particular. Short-term loans, especially those with terms of fewer than 30 days, are their primary area of expertise. Commercial banks are quickly integrating into the category of financial intermediaries by either partnering with NBFCs to create synergies or by lending digitally.
To crack down on illicit activity by some participants, the Reserve Bank of India (RBI) has announced the first set of guidelines for digital lending. The RBI created a Working Group on “Digital Lending (WGDL), including Lending through Online Platforms and Mobile Apps to address the issues.” In November 2021, the group suggested more substantial standards for digital lenders; some of these standards have been adopted and are now part of the new standards, while others are still being looked at.
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