Reserve Bank of India (RBI) Governor Shaktikanta Das has reiterated his concerns on the mushrooming of digital lending apps.“The need of the hour is to ensure assurance of safety after following a process of green-lighting (whitelisting) and due-diligence by the regulated entities. The RBI, in association with other relevant agencies, is taking steps to address this issue and take further steps as may be necessary,” Das said at the Global Fintech Festival in Mumbai.
The event wasorganised by the National Payments Corporation of India (NPCI), the Fintech Convergence Council (FCC), and the Payment Council of India (PCI).
He said,digital lending has taken off phenomenally, and has served the needs of various segments. That said, it has also raised several concerns around interest rates, unethical recovery practices, and data privacy issues.
The RBI has endeavoured to address these issues proactively, and as early as in June 2020, regulatory guidance was provided to regulated entities. This guidance, among other things, mandated that digital lending platforms disclose the names of the banks and/or non-banking financial companies (NBFCs) upfront on whose behalf they were providing the credit.
The recently issued regulatory guidelines on digital lending strike a well-considered balance between customer protection and business conduct on the one hand and supporting innovation on the other.
Das adds: “Let me emphasise that while innovations are very much welcome, they must be responsible, and should enhance the efficiency and resiliency of the financial system, while benefitting the consumers. Robust internal product and service assurance frameworks, together with fair and transparent governance, will go a long way to safeguard the interest of customers and ensure long-term sustainability of the fintech entities themselves. The level of due-diligence and oversight exercised by the regulated entities on their outsourced activities needs to be strengthened further. This would help in proactive mitigation of risks at the incipient stage itself.”
Das’ statements assume significance in the wake of the recent incident where a young pregnant woman was allegedly run over by the recovery agents of Mahindra & Mahindra Financial Services which had financed her father’s tractor. Also, a few people who had borrowed through some of these fintechapps later took their lives following harassment over non-payment.
Governance And Conduct Issues
Das laid particular emphasison governance and conduct issues of fintechs over lending and recovery.
“As we continue to support technological advancement and innovation, it is equally important that adequate attention is placed on governance and conduct issues. At the end of the day, sustainability of any fintech activity or business is about enhanced customer protection, better cyber security and resilience, managing financial integrity and strong data protection,” he says.
He added that he has assured the fintech community that the RBI would continue to encourage and support innovation. At the same time, they would expect the ecosystem to pay attention to governance, business conduct, regulatory compliance, and risk mitigation frameworks, he said.
“The fintech road ahead will witness ever-growing traffic in addition to the large number of existing players who are already there. It is, therefore, imperative that every player on this road follows the traffic rules for his/her own safety and the safety of others,” adds Das.