In a significant move to bolster consumer protection and regulate the growing digital lending market, the Reserve Bank of India (RBI), under the leadership of Governor Shaktikanta Das, announced on Thursday the creation of a public repository of digital lending apps (DLAs) deployed by regulated entities, including banks and non-banking financial corporations (NBFCs). This initiative is part of the central bank’s broader effort to tackle the increasing concerns surrounding unauthorized and illegal digital lending apps.

Addressing the Issue of Unauthorized Digital Lending Apps

Governor Shaktikanta Das highlighted the need for this repository while unveiling the latest monetary policy report. He stated, “To address the problems arising from unauthorized digital lending apps (DLAs), the Reserve Bank proposes to create a public repository of DLAs deployed by its regulated entities.” This move is designed to ensure that all digital lending apps used by regulated entities are listed in a publicly accessible database, providing consumers with a reliable means to verify the legitimacy of these platforms.

Regulated entities (REs) will be required to report and regularly update information about their DLAs in the repository. This measure is expected to serve as a vital tool for consumers to identify unauthorized lending apps, which have been a growing problem in India’s digital financial landscape.

The Prevalence of Illegal Lending Apps and the Need for Regulation

The significance of this initiative cannot be overstated, given the widespread use of illegal lending apps that have often exploited unsuspecting consumers. In February of last year, the government took stringent action by cracking down on 94 illegal lending apps. While some of these apps were later allowed to resume operations after proving their compliance with regulations, the incident underscored the urgent need for stricter oversight and consumer protection measures.

The RBI’s initiative to create a public repository is a proactive step in ensuring that consumers have access to accurate information about the digital lending apps they use. This move is particularly important in light of the rising cases of online fraud and scams in India.

Rising Online Fraud and the RBI’s Response

The RBI’s annual report, released in May, revealed a staggering 708 percent increase in online fraud cases over the past two years. Many Indian investors and depositors have fallen victim to these scams due to a combination of factors, including a lack of awareness and insufficient regulations. In one recent incident, two senior citizens in Ahmedabad lost nearly ₹3 crore in separate fraud cases, while a septuagenarian in Bengaluru was swindled out of his life’s savings in a WhatsApp scam.

In response to these alarming trends, the RBI has been working to tighten regulations and enhance consumer awareness. The creation of a public repository for DLAs is part of this broader effort to safeguard consumers from fraudulent activities in the digital lending space.

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RBI’s Circular on Digital Lending and Responsibilities of Banks

The RBI has been vigilant in its efforts to regulate the digital lending sector. In September 2022, the central bank issued a circular outlining a set of guidelines for digital lending. The circular made it clear that banks could not absolve themselves of responsibility simply because they had outsourced operations to a digital lending app. Banks were advised to ensure that these apps, whether developed by the bank or a third-party lending service provider, adhered strictly to the guidelines set forth in the circular.

This regulatory approach underscores the RBI’s commitment to ensuring that the digital lending ecosystem operates within a framework of accountability and transparency. By making banks responsible for the actions of their lending partners, the RBI aims to protect consumers from the potential risks associated with unregulated digital lending platforms.

Increasing the Frequency of Credit Information Reporting

In addition to creating the public repository for DLAs, the RBI has also proposed increasing the frequency of credit information reporting by banks to credit information companies (CICs). Currently, banks report credit information on a monthly basis. However, under the new proposal, this reporting would occur on a fortnightly basis or at even shorter intervals.

This change is designed to improve the availability of accurate credit information for both banks and borrowers. With more frequent updates, borrowers will benefit from faster updates to their credit information, particularly when repaying loans. This proposal reflects the RBI’s ongoing efforts to enhance the transparency and efficiency of India’s financial system.

Conclusion

The Reserve Bank of India’s decision to establish a public repository for digital lending apps marks a crucial step in protecting consumers from unauthorized lending practices and enhancing the overall integrity of the digital lending ecosystem. By holding regulated entities accountable and increasing the frequency of credit information reporting, the RBI is working to create a more secure and transparent financial environment for all stakeholders. As online fraud and scams continue to pose significant risks, these measures are essential in safeguarding the interests of Indian consumers and maintaining trust in the financial system.

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