RBI Governor Shaktikanta Das: Framework for digital lending platforms soon

RBI Governor Shaktikanta Das on Thursday said a broad regulatory architecture will be soon established to deal with predatory digital lending apps.

Addressing the Iconic Week Celebrations organized by the Central Board of Indirect Taxes and Customs (CBIC) as part of Azadi Ka Amrit Mahotsav, he said the regulatory framework for lending by digital platforms is a work in progress.

“I think very soon we will be coming out with a broad regulatory architecture which should be able to address the challenges that we are confronted with regard to lending through digital platforms, many of which are unauthorised, unregistered and, I should say, illegal, ” Das added.

As per the findings of an RBI Working Group released last November, as many as 600 out of 1,100 lending apps available to Indian Android users across 80 app stores at present are illegal.

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As the number of such apps grows, this trend would spike, since a user downloading a lending app cannot identify if the app is legitimate or not. It is also likely that several copycat apps and websites will mushroom across the internet. The working group set up by the Reserve Bank has proposed stringent norms for digital lenders, including separate legislation to prevent illegal digital lending activities.

Over the last year, thousands of people have fallen prey to predatory loan apps in the absence of any regulations, even reportedly suffered sexual harassment and ended up giving extortion money to loan recovery agents.

On April 16, The Indian Express had highlighted how a 24-year-old woman was called from 25 different mobile numbers and harassed into paying Rs 4.50 lakh for a loan which she claimed never took.

On May 4, a 38-year-old salesman Sandeep Korgavkar committed suicide at his residence in Mumbai owing to sexual harassment from loan recovery agents. The agents morphed his photo with a nude person’s photo and circulated it to people in his office, locality and to his friends and family members.

Digital loan apps offer loans without many hassles but allegedly ask the loanee to give access to their contact list. The pressure for repayment of the loan along with a high interest starts within weeks of securing the loan.

As part of the harassment, the loanee is called from multiple numbers and abusive text messages are sent to them and people in their contact list. The loan recovery agents, who use only WhatsApp to make the calls and send text messages, even send pornographic videos with morphed images of the loanee. The agents end up extorting much more than the loan amount taken by the borrower.

‘Avoid aggressive short-term reward-seeking culture’

Das also said businesses should avoid having an aggressive short-term reward-seeking culture without considering the build-up of excessive risks in their balance sheets.

At the CBIC event, the Reserve Bank Governor said doing business involves risk-taking, but before taking the risk the upside and downside will have to be carefully considered. “Businesses should avoid aggressive short-term reward-seeking culture without regard for the build-up of excessive risk in the balance sheet.”

“Indian business is now at a critical juncture with both opportunities and challenges. The macroeconomic and geopolitical environment is fast-changing and there is a greater need to remain alert,” he said. Entities with robust corporate governance and high transparency get rewarded by the investors with higher valuation metrics and are also able to raise capital at a much cheaper cost, Das added.

“A word of unsolicited advice to these young entrepreneurs and startups: they should constantly evaluate the build-up of risks and vulnerabilities in their businesses,” the RBI Governor said.

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