To rein in lending apps, RBI plans to set up public repository

The Reserve Bank of India has proposed to set up a public repository for digital lending apps (DLAs) to address the issue of unauthorised players in the digital lending sector. This initiative aims to tackle the rising concerns about illegal lending practices and enhance consumer protection.

RBI Governor Shaktikanta Das said the repository would serve as a comprehensive list of digital lending apps operated by RBI-regulated entities. These regulated entities will be responsible for reporting and regularly updating information about their digital lending applications in the repository.

A tool to identify fraud

The repository will provide consumers with a tool to identify and avoid fraudulent lending apps, reducing the risk of falling victim to predatory practices.

Mr. Das emphasised that the repository will be continuously updated based on the information provided by regulated entities. This includes adding new digital lending apps that meet regulatory standards and removing those that are operating unlawfully.

The initiative is part of the RBI's broader digital lending guidelines, which mandate that loan transactions must occur directly between borrowers and lenders, with clear and transparent disclosure of terms. Additionally, the guidelines emphasise the importance of robust grievance redressal mechanisms and the protection of borrower data.

The RBI had earlier considered establishing a Digital India Trust Agency (DIGITA) to further combat illegal lending practices. Indian regulators have been warning consumers about unreliable digital lending apps that provide rapid loans but come with steep interest rates and aggressive collection tactics. 

Indian consumers have transitioned from traditional bank branch visits to using mobile phones for borrowing, reflecting a major shift in the lending landscape as internet penetration in India continues to expand. Following the COVID-19 pandemic, many Indians faced financial hardships, and banks reduced their lending.

To fill this gap, online lending apps have become increasingly prominent. These platforms have proliferated, offering loans quickly but often at high interest rates and employing aggressive recovery practices. Many of these apps do not adhere to the RBI regulations.

Google asked to remove apps

Over the years, numerous complaints against these lending apps have emerged. Many users reported experiencing predatory practices, such as exorbitant interest rates, aggressive debt recovery tactics., unduathorised deductions, misleading terms, and harassment by collection agents. 

The Central Government and the RBI had asked Google in 2022 to enforce stricter regulations to curb the proliferation of such platforms. Google removed 2,500 fraudulent lending apps from its Play Store in December 2023.       

                                              (By arrangement with livemint.com)