RBI directs banks, NBFCs and digital lending platforms to adhere to the Fair Practices Code in letter and spirit

The new guidelines of the Reserve Bank of India (RBI) on digital lending could be a big source of relief to many borrowers who have been facing harassment and coercive tactics for the recovery of the funds by many of these lenders.

Social media like Twitter is abuzz with complaints by many borrowers who are facing harassment by recovery agents for repaying loans. Apart from retail borrowers, many micro, small and medium enterprises, too, have been facing this problem.

While the issue has come into focus in the current economic downturn, industry watchers say such methods were being used earlier as well by many lenders.

The Industry body Digital Lending Association of India (DLAI) has also been looking into many such complaints and recently released a code of conduct for its members.

“Both IndiaLends and DLAI are strictly against any practice of harassment for loan recovery. This is true at all times — pre, during or post-Covid. DLAI has launched a code of conduct that promotes fair lending practices — where anybody not following these practices will be removed as a DLAI member. We have removed a couple of members and we actively audit all complaints. We are not a regulator but try to self-regulate. We had reached out to the RBI as well informing them about our code of conduct and how it can benefit the entire lending industry,” said Gaurav Chopra, founder and CEO, IndiaLends, and President, DLAI.

Taking cognisance of this problem, the RBI, on June 24, issued guidelines to make digital lending more transparent and directed banks, NBFCs and digital lending platforms to disclose full information upfront on their websites to customers and adhere to the Fair Practices Code in letter and spirit.

“Of late, there are several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behaviour,” the RBI guidelines noted.

Boost for transparency

Sunil Lotke, Chief Officer, Legal, Compliance and Secretarial, U GRO Capital, noted that while there are various control measures prescribed in the outsourcing guidelines and Fair Practices Code, there had been a void space of non-transparency and instances of violations of the extant regulations. “The new prescriptions issued by the regulator are very important to players to acknowledge the significance of transparency in digital credit intermediation and will ensure adherence to the extant regulations in letter and spirit,” he said.

Noting that India is one of the few countries to offer loan moratorium to individual end-users, Charlie Lee, Global CEO and founder, True Balance, said it has impacted many NBFCs. “For the first moratorium period, we mandatorily allowed all our users to delay the due date. Now, we have also introduced revolving option for our lending users. Once they repay 10 per cent or 20 per cent of the disbursed amount, we automatically expand the due date so that they don’t have to pay interest,” he said, adding that this helped keep the default rate low.

Published on June 25, 2020

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