Industry says new digital lending standards will help them grow and become more responsible
The digital lending industry, led by app-based credit providers, has welcomed the new set of regulations issued by the RBI, saying the move will help the industry grow and become more responsible.
The Reserve Bank had tightened digital lending standards on Wednesday to prevent the charging of exorbitant rates and to secure the interest of customers by checking unethical loan collection practices.
Under the new standards, all loan disbursements and repayments must be executed only between the borrower’s bank accounts and regulated entities like banks and NBFCs without any loan service provider (LSP) transfer/pool accounts ).
In addition, any fees or charges payable to LSPs in the credit intermediation process will be paid directly by the regulated entities and not by the borrower, the Reserve Bank said.
Read also| RBI releases tough standards for digital lending space
Welcoming the announcements, the Digital Lenders Association of India (DLAI) said the industry was very encouraged by the new regulations.
As a forward-looking financial regulator that successfully balances the needs for financial innovation with the constraints of securing the integrity and stability of the financial system, the RBI has provided a nuanced blueprint that will help the ecosystem of digital ready to continue to grow responsibly. and sustainable, he added.
At the same time, the RBI has clearly addressed the need to root out emerging trends that run counter to best practices related to customer protection and data security, the association said in a statement on Thursday.
He also hailed the now mandatory collaboration between financial and fintech ecosystems, saying it is the best way to develop and sustain impactful and inclusive financial services.
Zestmoney’s Lizzie Chapman, who is also president of DLAI, described the guidelines as extremely positive for customers and fintech companies.
The guidelines make it very clear that the RBI will not allow any regulatory loopholes to be exploited to create businesses. Overall, the recommendations are good news for serious and credible fintech companies that believe in scale amid high levels of consumer protections, she said.
Brokerage Kotak Securities, in a note, said the new guidelines seem a bit restrictive for existing players as there is more emphasis on transparency, privacy and oversight of RBI-regulated entities.
Emphasis is always placed on the protection of consumer interests, in particular with regard to the transparency of prices/loan fees, the integration of a free search period, the prevention of over-indebtedness through the evaluation of repayment capacity, ensuring customer consent for data capture/storage, restricting access to mobile phone resources and incorporating policies on loan recovery mechanisms, he noted.
The report also pointed out that the RBI is silent on the regulation of so-called digital banks or neo-banks.
The direction of these regulations means that lenders are likely to be much more cautious in partnering with LSPs/fintechs. Restricting access to mobile phone resources could force lenders/LSPs to explore other methods of assessing borrowers’ creditworthiness, according to the report.
Another brokerage, Emkay Global, said that while the new guidelines focus on protecting customers from debt trap/data leakage, they are silent on capping borrower limits/pricing.
The new guidelines appear to be less binding on the digital lending space compared to the draft guidelines, while they lack clarity on a few other important aspects, including predatory pricing/borrower capping and a separate license for lenders digital, according to the report.
Swapnil Bhaskar of digital lender Niyo said the guidelines looked promising for fintechs as even unregulated entities are now recognized through LSPs and digital lending agents.
Second, the guidelines seem pretty user-friendly in terms of product transparency. However, they may increase some technology and security costs for fintechs and also user experience friction as there will be tighter controls on money movement and desktop reporting, even for products like small loans.
Sanjay Kao of fintech player Lentra said the standards will help the lending ecosystem work well because they are progressive measures taken in the interests of customers that will reduce or even eliminate consumer abuse, breaches of privacy and widespread KYC violations.
At the same time, the standards will compel lenders to reveal their data, credit scores and underwriting strategies and give borrowers full control over their personal data, which will help build customer confidence and increase their willingness to explore. digital lending lanes, he said.