In response to a slew of complaints, the Reserve Bank of India issued the first leg of the digital lending standards in August. It limits loan disbursements to firms regulated by the banking regulator.
The government has also lately cracked down on many unlawful loan apps exploiting unsuspecting clients, charging excessive interest rates, and issuing threats. Some of them are reported to have ties to China.
Earlier this month, Union Finance Minister Nirmala Sitharaman requested that the RBI create a “white list” of digital lending applications to combat illegitimate apps.
These worries were repeated at the Global Fintech Fest on Tuesday when Prime Minister Narendra Modi stated that the fintech sector must work tirelessly to improve safety and reliability.
Finance Minister Sitharaman stated on the same occasion and the same day that work was underway to develop a common know your customer or KYC. This system could be applied to various transactions across institutions.
Shaktikanta Das, governor of the RBI, too joined in, claiming that the growing influence of Big Tech in the financial sector could result in concentration risks. Das argued that it was important to look more closely at potential risks related to financial stability, market and corporate conduct, data privacy, and cyber security. His comments come when major tech firms like Google, Amazon, and WhatsApp have invested significantly in the nation’s payment sector. Das also addressed the government’s worries, stating that the rise in digital lending during the epidemic had caused them, as seen by several complaints about usurious interest rates, unethical recovery techniques, and data privacy.
The chairman of the Securities and Exchange Board of India, Madhabi Puri Buch, further commented on the government’s fears the day after these speeches. Buch stated that SEBI was attempting to fill the regulatory gap in the startup environment once more at the Global Fintech Fest.
She also disclosed a few things that fintech companies should remember to prevent a crackdown.
- Well, first of all, maintaining your anonymity in the banking sector is strictly forbidden. Transparency would be an important factor.
- Buch forewarned that a business model would not be approved if it could not be inspected or proven, including elements like the algorithm employed.
- Third, the SEBI chief emphasized that company structures that prevented customers from easily leaving would not be supported.
Lenders must provide borrowers with standardized information on all fees, penalties, and annual percentage rates under the new RBI regulations, which take effect in December. Furthermore, the credit limit cannot be automatically increased without the borrower’s express permission.
Following the standards, lending applications must only gather necessary data and have the borrower’s prior authorization. Banks and other affiliated lending service providers must appoint a nodal grievance officer to handle complaints. The guidelines also include additional reporting requirements.
The authorities are right to be concerned. As stated by the government, India has the world’s highest fintech adoption rate of 87%, which is much higher than the global average of 64%.
Fintech firms are also anticipated to manage $1 trillion in assets by 2030. In 2021, India’s real-time transactions will exceed 48 billion, 6.5 times the combined volume of the United States, Canada, the United Kingdom, France, and Germany. That had been the world’s largest absolute number of real-time transactions up to that moment. Furthermore, from $3 trillion today, the country’s digital payments sector is predicted to more than treble to $10 trillion by 2026.
So, where are things now, and what steps should stakeholders take to improve the situation?
According to Srinath Sridharan, Corporate Advisor and Independent Markets Commentator, the systems, procedures, and balance statements of the corporations they supervise are accessible to the RBI, SEBI, and IRDA. The RBI does not regulate many fintech companies, even though they appear to be engaged in lending and shadow lending. Without laws, these companies might cause problems in society. EMIs in the unregulated fintech sector may worry about RBI. RBI does not want India to have a high level of debt.