RBI Issues First Set Of Guidelines For Digital Lenders

The Reserve Bank of India on Wednesday accepted some of the recommendations made by a working group on digital lending in India. These recommendations will be implemented immediately, the regulator said.

While the RBI accepted certain recommendations by the working group, others were either kept aside as they require further deliberation or working with the government.

The recommendations which require further deliberation include the following:

• Each access/enquiry of credit information by any regulated entities or lending service providers from credit bureaus shall be conveyed to the borrower through mail or text message.

• RBI to lay down baseline technology standards for digital lending applications.

• Digital lenders should adopt ethical AI which focuses on protecting customer interest, promotes transparency, inclusion, impartiality, responsibility, reliability, security and privacy.

• The recommendation pertaining to first loss default guarantee is under examination with the RBI. Meanwhile the lenders must ensure that any lending involving such contractual agreements must adhere to RBI norms on securitisation of standard assets.

The recommendations which require further discussion with the government include:

• Balance sheet lending using digital lending applications to be restricted to entities regulated by RBI and to entities registered under any other law for specifically undertaking lending business.

• Government may consider framing a legislation for Banning of Unregulated Lending Activities which would cover all entities not authorised by RBI and not registered under any other law for specifically undertaking public lending.

• Formation of a independent body styled as Digital India Trust Agency to verify digital lending applications.

• Setting up of a National Financial Crime Record Bureau.

• Registrar of Companies may consider enhancing the use of digital technology and multiple data sources for early identification of shell finance companies and finance companies with proxy directors or opaque beneficial owners.

• Registrar of Companies may also consider making suitable arrangements for real time data sharing with RBI on the de-listing of such shell companies to enable RBI to take further action.