Digital Lending: New Guidelines To Shape Up

The Reserve Bank of India has come out with two pronouncements recently on digital lending guidelines and outsourcing of recovery agents by regulated entities (read financial lenders) to ensure orderly growth and protect borrowers in this space.

- Saptarshi Roy Bardhan

The digital loan product is a creation of mobile and web-based application where the entire life cycle that is - the lead generation, customer onboarding, credit underwriting, document sign up, disbursal and servicing are conducted electronically on digital platform through various algorithms, Artificial Intelligence (AI) and embedded Application Programming Interface (APIs). While this is definitely a technological innovation to increase productivity, efficiency and competitiveness, there have been unintended consequences on account of greater reliance on thirdparty lending service providers (LSPs) mis-selling to the unsuspecting customers, concerns over breach of data privacy, unethical business conduct and illegitimate operations.

In January 2021, when the pandemic was still in rage, RBI set up a working group on digital lending. The group invited inputs, views from various stakeholders like financial institutions, government bodies, law enforcing agencies, fintech companies and above all, the borrowers.

To put things in the right perspective, during the pandemic, the unbridled growth of digital lending to serve the retail credit hungry individuals, have been susceptible to a host of conduct and governance issues. The WG’s recommendations are likely to set the new contour of RBI guidelines and address these issues going ahead.