RBI cautions against unauthorized digital lending apps

Today, RBI for a second time in six months cautioned the general public and small business enterprises against falling prey to unauthorized digital lending platforms and mobile apps on promises of quick and hassle-free loans. The RBI’s words of caution come from reports over coercive recovery tactics including incessant calls, and naming and shaming defaulters to their close contacts as well as charging exorbitant interest rates charged by a section of such lenders. “These reports also refer to the adoption of unacceptable and high-handed recovery methods and misuse of agreements to access data from the mobile phones of borrowers”, the regulator added. The Central Bank also asked consumers not to share copies of knowing your customer (KYC) documents with unidentified persons, unverified and unauthorised apps. The consumers should report such apps and bank account information associated with the apps to concerned law enforcement agencies or use sachet portal (https://sachet.rbi.org.in) to file an on-line complaint,” it added.

During June 2020, RBI asked regulated entities like banks and NBFCs that they must adhere to fair practices guidelines in letter and spirit irrespective of whether they lend through their own digital lending platform or through an outsourced entity. The idea was to bring some discipline in the unregulated ones as well, the communiqué said. On Wednesday (December 23, 2020), RBI also said it has mandated digital lending platforms, used on behalf of banks and NBFCs, to disclose names of the lender backing them upfront to the customers. The names and addresses of the NBFCs registered with the Reserve Bank can be accessed through the RBI portal https://cms.rbi.org.in,” However, the problem is to regulate the bulk of these lenders as they are not registered with RBI but under money lending acts of various state governments, it said.

The Indian smartphone users are a lucrative target for digital lending platforms, aided by cheap mobile data offered by telcos. These unauthorized lenders ask for permission to access contacts on the phone when one installs their apps. Apart from it acting as a safety net in case of defaults, they also use those contacts to assess the creditworthiness of borrowers, many of whom would not have a formal credit history. Unfortunately, the covid-19 pandemic has hit these borrowers hard, disrupting their cash flows and weakening their repaying capabilities, and becoming the target of high-handed recovery methods.