Monitoring of digital lending apps will increase

The Reserve Bank of India (RBI) will now monitor digital lending apps for lending more strictly than before. To increase the monitoring of these apps, the Reserve Bank issued new guidelines on Wednesday. In these guidelines, arrangements have also been made to monitor digital lending apps as well as financial institutions providing loans through them. The Reserve Bank has taken this step only after receiving complaints about various errors made by digital lending apps.
In the new guidelines issued by the Reserve Bank, the right to pay and recover loans has been given only to banks and those financial institutions, which are properly regulated under the current system. It does not allow the repayment of loans and recovery of repayment to be left to any third party.
In this regard, the RBI guidelines read, “All loan disbursals and repayment transactions should take place only between the bank accounts of the borrower and the regulated financial entity. It should not be circumvented through the pool account of any lending service provider or any third party.”
In the new guidelines of the Reserve Bank, it has also been said that if any fee is charged by digital lending apps, then it will have to be paid by the lending bank or financial institution. The burden of any such fee should not be passed on to the borrower.
Apart from this, the Reserve Bank has also taken note of the issue of data collection through digital lending apps in its guidelines. Referring to this issue, RBI has written, “Only such data should be collected through Digital Lending Apps (DLAs), which is necessary and its audit trail should also be clear. Apart from this, the approval of the borrower for data collection will also have to be taken in advance.
The norms issued by the Reserve Bank also prohibit increasing the credit limit of the borrower without the prior consent of the borrower. Apart from this, the interest rate to be charged on the loan and other charges will also have to be given to the borrower in clear words.
Earlier last year, the Reserve Bank of India had constituted a committee to frame norms for digital lending. The RBI had received complaints from borrowers that DLAs were adopting unfair practices. After this, the Reserve Bank took this step. In January 2021, this working group constituted by the Reserve Bank made some recommendations in November 2021, which suggested the implementation of more strict rules on digital lenders. Some of these recommendations have been approved, while many are under consideration.