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The Reserve Bank of India (RBI) has set up a Working Group (WG) to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players, in a bid to put in place an appropriate regulatory approach.
This move comes in the backdrop of the recent spurt and popularity of online lending platforms/ mobile lending apps raising certain serious concerns which have wider systemic implications, the central bank said.
The constitution of the WG should also be seen in the context of agents of China-based money lending apps being arrested in Hyderabad in the last one month or so for harassing borrowers for repayments.
The six-member WG, comprising four senior RBI officers and two external members, will evaluate digital lending activities and assess the penetration and standards of outsourced digital lending activities in RBI-regulated entities.
The group, headed by Jayant Kumar Dash, Executive Director, RBI, will identify the risks posed by unregulated digital lending to financial stability, regulated entities and consumers.
As per the terms of reference, the WG is expected to suggest regulatory changes, if any, to promote orderly growth of digital lending; and recommend measures, if any, for expansion of specific regulatory or statutory perimeter, and suggest the role of various regulatory and government agencies.
The group is expected to suggest a robust Fair Practices Code for digital lending players, insourced or outsourced; and measures for enhanced Consumer Protection. Further, it will also recommend measures for robust data governance, data privacy and data security standards for deployment of digital lending services.
The group has been advised to submit its report in three months.
The central bank observed that while penetration of digital methods in the financial sector is a welcome development, the benefits and certain downside risks are often interwoven in such endeavours.
“A balanced approach needs to be followed so that the regulatory framework supports innovation while ensuring data security, privacy, confidentiality and consumer protection,” the RBI said.