Last week the Reserve bank of India came up with strict digital lending norms which aimed at curbing rising malpractices in the digital lending ecosystem. As per the guidelines all digital loans must be disbursed and repaid through bank accounts of regulated entities only, without pass-through of loan service providers (LSPs) or other third parties. Also, any fees or charges payable to LSPs in the credit intermediation process shall be paid directly by the regulated entities and not by the borrower.
The guidelines are according to the recommendations of a working group for digital lending, whose report was made public in November 2021. “The concerns primarily relate to unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices,” the RBI said in the final guidelines.
The central bank classified digital lenders into three categories:-
Entities regulated by the RBI and permitted to carry out lending business,
Entities authorised to carry out lending as per other statutory or regulatory provisions but not regulated by the RBI,
Entities lending outside the purview of any statutory or regulatory provisions.
The latest regulatory framework is focused on the digital lending ecosystem of RBI’s regulated entities (REs) and the LSPs engaged by them to extend credit facilitation services.As for entities falling in the second category, the respective regulator may consider formulating rules on digital lending, based on the recommendations of the working group.For entities in the third category, the working group has suggested specific legislative and institutional interventions for consideration by the central government to curb illegitimate lending.
The Digital Lenders Association of India (DLAI) said the industry is very encouraged by the new regulations.The guidelines are a nuanced blueprint that will help the digital lending ecosystem to continue to grow in a responsible and sustainable manner. “At the same time the RBI has clearly addressed the need to stamp out incipient trends that are antithetical to the best practices related to customer protection and data security.
Experts believe that the guidelines are extremely positive for both customers and fintech companies. new guidelines focus on protecting customer from debt trap/data leakage, it is silent on capping borrower limits/pricing.Also the new guidelines appear to be less taxing for the digital lending space from the draft guidelines, while they miss clarity on few other important aspects, including predatory pricing/capping of borrowers, and separate licence for digital lenders as per brokerage Emkay Global.
Small finance bank to offer wide range of forex products
Reserve Bank allowed Small finance banks which completed two years of operations as Category-II Authorised Dealer to do Category-I Authorised Dealer business, subject to compliance of certain norms to offer a wide range of forex products to their customers.
Inorder to give more flexibility to SFBs to meet their customers’ foreign exchange business requirements, RBI has decided that all the scheduled SFBs, after completion of at least two years of operations as Authorised Dealer Category-II, will be eligible for Authorised Dealer Category-I licence. As a Category-I authorised dealer, the small finance bank will be allowed to deal in all other transactions in foreign exchange like bill of exchange, cheques, letters of credit, deposits, etc. While as a Category-II Authorised dealer, the bank is allowed to offer only money changing facilities.
The retail inflation eased to an annual 6.71% in July, the lowest since March, but above the upper limit of the Reserve Bank of India’s target range for seven straight months. Easing of food prices – which account for nearly half of the consumer price index basket and fuel costs helped lower the pace of rise in price pressures.While in June, inflation held above 7%.
Microsoft has joined Open Network for Digital Commerce (ONDC) in India and plans to introduce social e-commerce in the country. ONDC is heading for its launch in Bengaluru this August. ONDC is the government’s effort to break Amazon and Walmart’s dominance in the e-commerce sector.
