Taking cognizance of harassment being suffered by customers from digital or app-based lending platforms, the Reserve Bank of India (RBI) has warned banks and non-banking finance companies (NBFCs) that as lenders they cannot diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.
In a circular issued on 24 June 2020, the RBI says, "Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and fair practices code (FPC) issued to banks and NBFCs. It is, therefore, reiterated that banks and NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the fair practices code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services."
RBI says wherever banks and NBFCs engage digital lending platforms as their agents to source borrowers and/ or to recover dues, they must follow RBI instructions. These include...
a) Names of digital lending platforms engaged as agents shall be disclosed on the website of banks/ NBFCs.
b) Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the bank/ NBFC on whose behalf they are interacting with him.
c) Immediately after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.
d) A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans.
e) Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.
f) Adequate efforts shall be made towards creation of awareness about the grievance redressal mechanism.
According to RBI banks and NBFCs are providing loans to through their digital platforms to. In addition, it says, some NBFCs have been registered with RBI as ‘digital-only’ lending entities while some NBFCs are registered to work both on digital and brick-mortar channels of credit delivery.
Thus, banks and NBFCs are observed to lend either directly through their own digital platforms or through a digital lending platform under an outsourcing arrangement, the central bank says.
RBI says, "It has further been observed that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank or NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework. 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 article says barring a few, most such lending companies charge a high interest and processing fee on short-term loans (seven days to one month). Their interest rates vary from 25-40% while the processing fee ranges from 15% to 20%. In addition, GST at the rate of 18% is levied on the processing fee.
The Federal learnt that many of these companies are backed by Chinese investors who partner with India’s licensed NBFCs. On Google PlayStore, loans apps like CashBus, CashBean, Moneed, Robocash, Cashmama, WifiCash, Moneed, Kissht, Loanflix among others are accessible at the click of a button.
Some of the customers have been granted loans not on the basis of the financial creditworthiness, but merely based on the PAN Card, Aadhaar number and how well they are connected on social platforms.
Upon questioning as to how some of these Chinese companies gain access to verify based on Aadhaar and PAN cards, an industry source told The Federal, companies like Veri4digial and Digio do third-party verification by means of KYC for such platforms.
Data Analytics firm Tracxn in a report shared with The Federal noted that 434 app-based lending platforms came up since 2015. However, no data was available on the precise number of total lenders who depended on such platforms.