RBI to create repository of lending apps

The repository will enable borrowers in identifying whether the lending app is illegal or legal.

The RBI issued guidelines on digital lending addressing protection of customers interest, data privacy, concerns on interest rates and recovery practices and mis-selling on September 2, 2022. However, media reports have highlighted continued presence of unscrupulous players in digital lending who falsely claim their association with RBI regulated entities (REs).

As per the findings of an RBI Working Group, as many as 600 out of 1100 lending apps available for Indian Android users across 80 application stores are illegal apps. And as the number of lending apps grows, this trend would spike, since a user downloading a lending app cannot identify if the app is legitimate or not.

It is also likely that several copycat apps and websites will mushroom across the internet. The working group set up by the RBI had proposed stringent norms for digital lenders, including a separate legislation to prevent illegal digital lending activities.

Over the last five years, thousands of people have fallen prey to predatory loan apps in the absence of any regulations, even suffered sexual harassment and ended up giving extortion money to loan recovery agents.

In September 2022, the RBI came out with guidelines on digital lending aimed at protecting customers from unethical business practices, such as mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, adopted by digital lenders.

The RBI asked the regulated entities to ensure that Lending Service Providers (LSPs) and DLAs comply with the guidelines. As per the guidelines, the regulated entities will have to disclose upfront the rate charged to the borrower of a digital loan, ensure that borrowers are aware of the products at the time of on-boarding and capture the economic profile of the borrowers before offering the loans.