The recently released digital lending regulations have been designed so the framework doesn't impact interest of the customers. It is meant to end regulatory arbitrage and protect customers, Reserve Bank of India Deputy Governor M Rajeshwar Rao on Thursday said.
Speaking at an event organised by industry body Assocham, Rao said that digital payment landscape has witnessed rapid growth of product delivery in between 2017-2020. Majority of the digital lending is being enabled by NBFCs through Fintech partnerships. However, with the expansion of digital lending, various concerns have come up. These primarily are unbridled engagement of third parties, misselling, breach of data privacy, unethical recovery practices and exorbitant interest rates and as a preemptive measure RBI regulated the activities.
On August 10, RBI came out with digital lending norms after extensive consultations and last week asked the industry to implement those by November this year, to maintain a balance so that the customer's interest is not compromised. "The framework is designed to strike a balance between the need for an innovative and inclusive system while at the same time ensuring that the regulatory arbitrage is not exploited to the detriment to the customer's interest," Rao said. He added that the norms put the onus squarely on the regulated entities on behalf of whom the apps do the lending.
Rao said disruptive business model, high interest, compromising customer's data all are a concern and RBI has to regulate it. deepening credit is the bedrock of financial inclusion and termed access to formal credit as a force multiplier. Having achieved successes on bank accounts - where 78 percent of adults have a bank account now, as against 53 percent in 2014 - we need to ensure that people take adequate credit now, which will enhance the quality of financial inclusion.
In the absence of formal credit, people have to depend on the unsustainable informal credit or personal equity, he said.
"They will have to ensure that the loan service facilitator and the digital lending apps with whom they have outsourcing tie ups, function within the regulatory ecosystem not just in letter but also in spirit, the Deputy Governor said.
Going forward, the passage of a recommended legislation banning lending by unauthorised entities and creation of a self-regulatory organisation for the digital lenders will help the industry. Digital lending has an important role to play in India's growth especially by supporting cash flow-based lending to small businesses. The regulatory challenge is to ensure that innovation continues in the industry, and at the same time ensure that customer's interest is not compromised, Rao added.
However, some players in the fintech industry have expressed concerns that the norms on lending will impact their operations.
Prashant Kumar, Managing Director and Chief Executive Officer, Yes Bank, said, our basic mantra by 2030 is growth through inclusivity and at the same time inclusivity will not be possible unless we do it. This is something which becomes the central point not only for the Government of India but also for the financial sector. "We are talking about taking care of 1.4 billion people and providing them financial services…. Access to bank account through Jan Dhan. There are more than 45 crore Jan Dhan account and when you talk about the facility 55% of the Jan Dhan account are being opened. By and large the convenience of the payment services is driving digital lending. Fintech's are playing a very very important part as they have been able to understand the need of the customer and they have the ability to understand the behaviour on the technology side."
V Vaidyanathan MD & CEO, of IDFC First Bank, said, there is a huge opportunity for the banking sector. In the Indian banking system, credit growth continues to remain low and has scope to grow. We also appreciate the benefits of digital credit, one needs to take cognisance of the risks involved. Indian banking has grown by leaps and bounds since 2010 both in terms of deposits and loans, in spite of the problems.
Umesh Govind Revankar, co-chairman, ASSOCHAM National Council for NBFC & Infrastructure Financing and VC & MD Shriram Transport Finance, said, NBFC they have a purpose, but whether the NBFC and banks and all these new platforms and entities whether they help in disrupting credit growth has to be seen. India's credit growth is not as much as India's capability to take credit and use it.
Niranjan Hiranandani, past president ASSOCHAM & co founder & MD, Hiranandani Group, said, "Today we have advanced technologies and also FinTech's gradually disrupting financial services in the country. The changes in the banking system are happening very rapidly. Disruptive technologies are increasingly being introduced with NEO banking is being launched to disrupt financial services in the country."