24/11/2021 - Indian Economy | Mainstorming

IAS Parliament 3 years

KEY POINTS

· It is critical digital apps continue to lend so, since penetration of formal finance in the country is abysmally low and, by one estimate, is probably less than 10% of the demand.

· RBI’s working group has done well to recommend the creation of a nodal agency to verify the technological credentials of all lending apps and also dedicated legislation to curb illegal lending.

· The disbursements and repayments must be made directly into the bank accounts of borrowers and lenders so that there is a proper trail of transactions.

· If prepaid instruments are used, these must be preceded by proper know your customer (KYC) processes.

· Importantly, lending by regulated entities (REs) through lending apps must be reported to credit bureaus; there needs to be a record of credit flows.

· The working group has done well to say that all data must be stored in servers in India. That is a justified requirement given the enormous value of the information being gathered by these lenders.

· The several instances of lenders using coercive tactics to recover loans may also have prompted such detailed guidelines.

· It is now up to digital apps to play by the rules and self-regulate themselves. As the universe of fintech grows, RBI must arm itself with the necessary technology and technical expertise needed to track lending apps on a real-time basis.