Large-scale use of new methodologies in credit risk assessment can create systemic concerns, warns RBI Guv

Our Bureau | Updated on: Jun 17, 2022


Need to strike a fine balance between enabling innovation and preventing systemic risks

Large technology companies (BigTech), which have entered into provision of financial services, could potentially be a source of disruption to the financial system, cautioned Reserve Bank of India Governor Shaktikanta Das.

He observed that such companies, whether from e-commerce, social media, search engine platforms, ride hailing and similar businesses, have started to offer financial services in a big way on their own or on behalf of others.

“These companies have an enormous amount of customer data, which has helped them to offer tailored financial services to entities and individuals lacking credit history or collateral.

“Even the banks and other lenders are sometimes utilising platforms provided by fintech companies in their internal processes for credit risk assessment,” said Das at a BFSI Summit hosted by a business publication.

Such large-scale use of new methodologies in credit risk assessment can create systemic concerns like over-leverage, inadequate credit assessment, cautioned the Governor.

A fine balance

Authorities and regulators have to strike a fine balance between enabling innovation and preventing systemic risks, he added.

Das observed that the big techs also pose concerns related to competition, data protection, data sharing and operational resilience of critical services in situations where banks and NBFCs utilise the services of big tech companies.

“These concerns can also materialise in sectors other than financial services. The provision of financial services through the digital channel, including lending through online platforms and mobile apps, have brought in issues relating to unfair practices, data privacy, documentation, transparency, conduct, breach of licensing conditions,” said Das.

The Reserve Bank will soon issue suitable guidelines and measures to make the digital lending ecosystem safe and sound, while enhancing customer protection and encouraging innovation.

“The increasing use of technology and digital services has led to more incidents of digital frauds and customer dissatisfaction. The recommendations of the RBI Working Group on digital lending in this area are under examination for issuance of guidelines,” said Das.

In the context of customer service, the Governor noted that another area that is engaging the attention of the RBI is the harsh recovery methods used by certain lenders, without having adequate checks and controls over their recovery agents.

“We have received complaints of customers being contacted by recovery agents at odd hours, even past midnight. There are also complaints of recovery agents using foul language. Such kind of actions by recovery agents are unacceptable and pose reputational risk for the financial entities themselves.

“We have taken serious note of such instances and will not hesitate to take stringent action in cases where regulated entities are involved. Such complaints against unregulated entities will have to be taken up with appropriate law enforcement agencies,” said Das.

Published on June 17, 2022
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