Mudra Compass

In this digital era, technology is advancing day-by-day. We have observed that many digital platforms emerged in the financial sectors with a claim to offer quick and hassle-free loans to retail individuals, small traders, and other borrowers.  Some Banks and NBFCs are also engaged on digital platforms to provide loans to their customers. Many NBFCs are registered with RBI as ‘digital-only’ lending entities and some NBFCs are registered to work both ‘digital-only’ and ‘market led’ for credit offerings. Thus, banks and NBFCs are observed lending through their own direct platform or through a digital lending platform under an outsourced arrangement.

 It has been also observed that the lending platform considers their identity as lenders and not disclosing the name of bank and NBFCs at the backend which will further create challenges in accessing grievance redressal measures available under the regulatory framework. There are several complaints against this kind of lending institutions/platform such as, high interest rates, non-transparent method of lending and calculating interest, harsh recovery procedures, unauthorized use of personal data and bad behavior. Digital credit delivery in the financial sector is a great development in time and energy saving, however, the concern arises from non-transparency of transactions and violations of guidelines on outsourcing of financial services thus, the fair practices code is issued to banks and NBFCs. There is further emphasis on banks and NBFCs must adhere to the fair practices code guidelines issued by RBI, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform.  It must be noted that outsourcing any of the services or activity or process by banks/NBFCs does not diminish their obligations, as they must comply with regulatory instructions. It is mandatory to follow the instructions whenever the banks/NBFCs engage digital platforms as their agent to source borrowers:

a)      It is mandatory for banks/NBFCs to disclose the name of agents on the website of which digital lending platforms are engaged.

b)      Digital lending platforms must have to disclose the name of the banks/NBFCs on whose behalf they are interacting with him.

c)       After sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the concerned banks/NBFCs.

d)      At the time of loan sanction/disbursement, a copy of the loan agreement along with a copy of each of all enclosures quoted in the loan agreement shall be furnished to all borrowers.

e)      Banks/NBFCs must have to monitor over the digital lending platform which they have engaged for digital lending.

f)       Banks/NBFCs shall make adequate efforts towards creation of awareness about the grievance redressal mechanism.

Any violations in following the guidelines on fair practice code by banks/NBFCs will be viewed seriously.

When it comes to borrowing and lending, it is critical that there is a clear, standard, and systematic process.  Furthermore, these rules will act as a safeguard for customer information. And these will also help to eliminate any kind of miscommunication and misinterpretation between lenders and borrowers. As per the source, currently there are 365 Fintechs in digital lending across the consumer lending, SME finance, aggregator and P2P lending space.

Even in January 2021, a working group was set up by RBI to examine digital lending activities. The need of setting Fair Practices code arose due to unethical practices of digital lending platforms or due to several complaints from customers. But have you checked how many of them adhere to these guidelines of Fair Prentices code?  How many have attended customers genuinely in light of these guidelines by disclosing the said instructions?  

We are genuinely interested in customers getting transparent services from ‘digital only’ platforms or ‘digital only’ and ‘brick-mortar’ channels. If you are such customers and have faced any issue or anything you want to share of your experience with digital lenders, write us on editorinchief@mudracompass.com or you can also write your complaints regarding any distress experience with digital lenders on complain@apoorvaa.co.in and Apoorvaa will help you to address and support your issues.