India’s digital lending industry, which is expected to grow in worth to USD1.3 trillion by the end of the decade, has been subject to a clampdown by the central bank. The Reserve Bank of India (RBI) tightened its rules on digital lending following complaints about consumers being lured into debt traps through quick loans. The digital lending guidelines issued by the RBI are consumer-centric and aimed at protecting digital borrowers from unethical business practices when it comes to loan recovery by some of the digital lending apps.
The guidelines prescribe that uniform terms and conditions should be disclosed by all digital lenders. Customers should be allowed to exit the lending arrangement within a specified timeframe. Hidden charges are prohibited, and customer complaints will be addressed by the appointment of a nodal officer. The guidelines also introduced data minimisation norms aimed at boosting customer confidence and trust in digital lending platforms.
RBI Governor Shaktikanta Das said the guidelines were intended to balance customer protection and business behaviour while supporting innovation. Innovation is welcome but it should enhance the efficiency and resilience of the financial system while benefitting consumers, said Das.
India’s constitution protects the right to privacy as a basic human right. This is exemplified in the RBI’s digital lending guidelines, which state that regulated entities – namely banks and non-banking finance companies (NBFCs) – cannot store borrowers’ data, with the exception of basic minimal information.
A New Delhi-based white-collar crime lawyer commenting on the central bank’s proactiveness told India Business Law Journal that the RBI had ensured the protection of sensitive personal data even before warranted to do so under Indian law. The country has yet to finalise its Personal Data Protection Bill.
Considering how fintech companies tend to hoard and leverage customer data, borrowers should be able to withdraw their consent at any point in time, the lawyer said. The guidelines are aimed at cleaning up the fintech ecosystem, which has earned a bad name lately, and the regulations will help focus on the customer and protect personal data, and address grievances.
Given the mushrooming of fintech companies, the RBI’s Das said: “The need of the hour is to ensure assurance of safety after following a process of green-lighting (white-listing) and due diligence by the regulated entities.”