In the final two decades, the widespread use of technologies in the economic services sector has encouraged quite a few banks and Non-banking Financial Companies (NBFCs) to work with digital lending platforms, simultaneously permitting them to attain out to a bigger customer base and simplifying their operations. These platforms allow economic institutions to provide an array of hassle-free of charge services, such as lending, account opening, and credit evaluation. In the backdrop of these developments, the Reserve Bank of India’s (RBI) final year notification, instructing all institutes engaged in digital-based transactions to adhere to the Fair Practices Code, requirements quick focus.
The notification was issued in light of several incidents that revealed very unethical practices followed by some economic firms. These incorporated exorbitant interest prices on borrowings, non-transparent interest calculation, harsh practices to recover loans, and unauthorised usage of customer information. The following guidelines are a portion of the Fair Practices Code by RBI which are binding for all digital lending institutions as effectively as organizations partnering with them to supply borrowers and/or to recover dues:
- Names of digital lending platforms engaged as agents shall be disclosed on the web-site of banks/ NBFCs.
- Digital lending platforms engaged as agents shall be directed to disclose upfront to the consumer, the name of the bank/ NBFC on whose behalf they are interacting with him/her.
- Immediately immediately after sanction, but prior to the execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the bank/ NBFC concerned.
- A copy of the loan agreement enclosed with the numerous elements of the charge structure and/or enclosures quoted in the loan agreement shall be furnished to the borrowers at the time of their loan sanction/disbursement
- Effective oversight and monitoring shall be ensured more than the digital lending platforms engaged by the banks/ NBFCs.
- Adequate efforts shall be produced towards the creation of awareness about the grievance redressal mechanism
Protecting customer interests has often been the principal motive of the nation’s regulatory bank. The escalating quantity of service providers and tie-ups supplying effortless loans to folks operating as retailers, little-scale traders, and other folks necessitated the presence of recommendations that streamlines the complete process to curb all discrepancies. In addition, it was observed that many digital lending platforms have been portraying themselves as lenders without the need of disclosing the names of the bank or NBFC’s that they have been partnered with, and such situations of non-disclosure brought to the purview of lending a tremendous quantity of ambiguity. Further, it was also noted that clients faced immense problems though attempting to raise grievances due to the lack of a right structure and transparent technique.
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In response to this mismanagement, the RBI issued the “Fair Practices Code “ and declared that outsourcing of any activity by banks or NBFCs does not free of charge them from their obligations. Instead, the duty of complying with such regulations rests solely on them and they will be held accountable for any miscarriage of the exact same. Whether a bank or an NBFC (like these registered to operate on ‘digital-only or both digital and brick-mortar channels of credit delivery) utilises its lending platforms or an outsourced channel, they must adhere to the Fair Practices Code in letter and spirit. Any violation with regards to compliance with the set guidelines will undergo serious scrutiny and review. The RBI also marked the digital delivery in credit intermediation as a welcome development.
These guidelines and regulatory code of conduct will help create an environment reverberating with trust and transparency in the sphere of financial services via digital lending platforms. It will help eradicate digital lenders acting as agents for non-registered NBFCs. With the presence of an ethical structure, consumers can enjoy the benefits of hassle-free loan and interest facilities. Furthermore, these rules act as guardians of crucial customer information. By establishing a crystal clear communication channel, these guidelines help in weeding out all miscommunications between lenders and borrowers concerning the details of their loan, interests, and other additional charges. Apart from the removal of miscommunication, these channels provide a robust grievance resolution system to consumers, wherein they can find detailed solutions for all their problems and queries.
When it comes to borrowing and lending, it is critical that there is a clear, standard, and systematic process in place. In light of these guidelines, several financial service providers have taken the initiative to introduce their internal set of rules to further champion the cause of safeguarding the customer’s interests. For instance, the Fintech Association for Consumer Empowerment (FACE), a non-profit body established by a group of new-age fintech organisations, has its personal set of code of conduct for digital lending platforms. The organisation aims to establish a secure ecosystem that entails typical dialogues with business policymakers such as the RBI, Ministry of Finance, and other arranging bodies like Niti Aayog. The development of such institutions showcases how it is not just the RBI that desires a clean sector rather, the complete business is working in unison to make the sphere of tech-enabled economic services a secure and transparent one.
Ranvir Singh is the Co-Founder & MD of Kissht. Views expressed are the author’s personal.