The Digital Lending Standards issued by the Reserve Bank of India (RBI) on digital lending aim to strike a balance between innovation and protecting the interests of customers, said Mr. Rajeshwar Rao, Deputy Governor of the RBI.
“The challenge for the regulator of a rapidly developing economy like ours is to keep pace with market innovations and try to strike a balance between providing stability without hampering innovation,” Rao said during a an event organized by the industrial body Assocham.
As digital lending has accelerated in recent times and changed the nature of banking, consumer protection is needed against risks arising from practices such as breach of data privacy, disruptive business models, methods of aggressive paybacks and exorbitant interest rates.
Also read: Existing loans must comply with new digital lending standards by November
“Responsible financial innovation requires balancing innovative products with the necessary safeguards to ensure the stability of the financial system and the protection of customers,” he said.
In August, the RBI released digital lending standards based on recommendations from a task force. Key guidelines include disbursing loans to the borrower’s bank accounts with the lender without any third parties and full disclosure of all fees and charges payable to the loan service provider. Last week, the RBI ordered lenders to comply with digital lending standards by November 30.
Lenders are responsible for digital lending compliance and they will need to ensure that the lending services facilitator and the digital lending entities with which they have outsourcing links operate within the regulatory ecosystem, the deputy added. -governor.
While credit deepening is the foundation of financial inclusion, access to formal credit is a force multiplier, Rao said. However, banks and regulators should strive to improve customer trust in order to increase the use of bank accounts, he added.