Digital lending has witnessed an exponential rise in the recent years with more fintechs entering the lending market, offering innovative lending solutions. The sector also came under RBI’s scrutiny in the recent past, and new guidelines on digital lending were issued.
RBI Governor Shaktikanta Das on Thursday highlighted that as per latest data, after the Reserve Bank issued the digital lending guidelines, there has been an increased confidence of investors in this space and a spur in private equity investments in the fintech lending space.
“After we came out with the digital lending guidelines the data will establish unambiguously that the confidence of private sector investors in the fintech lending sector has gone up, not just anecdotally, but according to actual data. Flow of investments into the fintech space in particular reference with digital lending has really grown and the confidence in our system has gone up,” said Governor Das.
He further added that the data on private equity flows into digital lending space after the issuance of the digital lending guidelines demonstrates the faith of investors on the Indian digital lending story and the belief that going forward digital lending under the regulatory gaze of RBI will spur the fintech sector even more.
While digital lending has seen an exponential rise in various economies including India, it has also raised a host of business conduct issues. Consequently various regulatory dilemnas have emerged wherein a balanced approach had to be taken.
“The outcome of RBI’s regulatory balance was reflected in the digital lending guidelines issued in September 2022, followed by the guidelines on FLDG covering prudential concerns and other salient facets of outsourcing, business conduct, data privacy and digital lending operation,” he said.
The Apex bank governor further added that the regulatory objective behind the issuance of these guidelines was to rein in negative externalities while retaining the salutory effects of innovative digital models.
With increasing number of digital loan frauds, consumer harassment, exploitation of data, etc, the Reserve Bank of India in September 2022 had resorted to bring out strict guidelines for lenders to follow, to help curb frauds in the ecosystem.
The guidelines were introduced to ensure orderly growth and protect borrowers following complaints that lending apps were charging usurious interest rates, pursuing aggressive recovery practices, and committing fraud and breach of data privacy.
The Reserve Bank’s regulatory framework is focused on the digital lending ecosystem of RBI’s Regulated Entities (REs) and LSPs engaged by them to extend various permissible credit facilitation services. The Apex Bank had issued guidelines for digital lending apps and even for banks to follow, to protect consumer data.
