{"id":199846,"date":"2022-08-12T18:48:46","date_gmt":"2022-08-12T13:18:46","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=199846"},"modified":"2022-08-12T18:48:46","modified_gmt":"2022-08-12T13:18:46","slug":"regulating-digital-lending","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/regulating-digital-lending\/","title":{"rendered":"Regulating digital lending"},"content":{"rendered":"\n

Source<\/strong>: The post is based on an article \u201cRegulating digital lending\u201d<\/strong> published in the Business Standard<\/strong> on 12th<\/sup> August 2022.<\/p>\n

Syllabus: GS 2 – <\/strong>Government Policies and Interventions for Development in various sectors and issues arising out of their Design and Implementation.<\/p>\n

Relevance: <\/strong>Digital Lending Framework in India<\/p>\n

News: <\/strong>The Reserve Bank of India (RBI) has published the first set of norms to regulate digital lending in India. Norms are based on the recommendations of a working group <\/strong>that was set up In January 2021.<\/p>\n

Needs for regulation on digital lending<\/strong><\/h5>\n

At present, digital lending is a nascent segment in the Indian financial sector.<\/p>\n

There are anecdotal allegations of many frauds in this segment in India. Therefore, actions must be taken to protect citizens from such frauds.<\/p>\n

The digital lenders are finding it hard to sell such products to digitally unaware customers who don\u2019t understand the implications and fine print.<\/p>\n

The central bank is concerned about the possibility of widespread defaults<\/strong> in this segment and cascading effects.<\/p>\n

New Set of Norms<\/strong><\/h5>\n

The RBI has created three buckets for entities<\/strong> in the digital loans market: (1)<\/strong> entities directly regulated by the RBI, (2)<\/strong> entities not regulated by the RBI but authorized to carry out lending in accordance with other provisions, and (3)<\/strong> entities involved in digital lending while being outside the purview of any regulations.<\/p>\n

Set of new norms for the digital loan market<\/strong><\/h5>\n

This market works on the basis of digital entities<\/strong> known as Lending Service Providers (LSP)<\/strong>. These LSP act as intermediaries to arrange personal loans between lender and borrower. The loans are provided by a regulated entity<\/strong>, such as a bank.<\/p>\n

In such cases, loan disbursements and repayments must be executed by direct transfers between the account of the borrower and the regulated entity providing the loan.<\/p>\n

In this, any charges payable to the LSP in intermediation are paid by the regulated entity providing the loans, and not by the borrower.<\/p>\n

Also, in any digital loan, a standardized key fact statement (KFS)<\/strong> must be provided to the borrower. Further, entities have to disclose the all-inclusive cost of digital loans\u00a0in the form of an annual percentage rate (APR)<\/strong>, which will be part of the KFS.<\/p>\n

Any data collected from borrowers must be need-based, collected with a clear audit trail, and with explicit prior consent.<\/p>\n

The borrower must have the \u201cright to forget<\/strong>\u201d where personal data can be deleted.<\/p>\n

All digital lending products must be reported to credit information companies.<\/p>\n

All digital loans\u00a0must come with a cooling-off\/look-up period during which the borrower can exit the loan by repaying the principal and the proportionate APR without penalty.<\/p>\n

The regulated entities and the LSPs working with them must also have a nodal grievance redress officer <\/strong>to deal with FinTech<\/strong> and complaints related to digital lending. If any complaint is not resolved within a stipulated period of 30 days<\/strong>, a complaint can be lodged under the RBI\u2019s integrated ombudsman scheme<\/strong>.<\/p>\n

What should be done?<\/strong><\/h5>\n

The RBI has said it would release a second set of norms<\/strong> after engagement with the government and other stakeholders.<\/p>\n

The government needs to legislate for the norms and entities within the regulatory purview and should set up an institutional mechanism<\/strong><\/p>\n

The RBI\u00a0could ensure greater transparency<\/strong> by mandating disclosure of all fees and charges.<\/p>\n

The RBI could regularly release aggregated and anonymized data to give a sense of market size and growth rates.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on an article \u201cRegulating digital lending\u201d published in the Business Standard on 12th August 2022. Syllabus: GS 2 – Government Policies and Interventions for Development in various sectors and issues arising out of their Design and Implementation. Relevance: Digital Lending Framework in India News: The Reserve Bank of India (RBI)… Continue reading Regulating digital lending<\/span><\/a><\/p>\n","protected":false},"author":10343,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,212],"class_list":["post-199846","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-2","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/199846","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10343"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=199846"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/199846\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=199846"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=199846"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=199846"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}