To make digital lending more transparent, the Reserve Bank on Wednesday directed banks, NBFCs and digital lending platforms to disclose full information upfront on their websites to customers.The direction comes against the backdrop of several complaints relating to exorbitant interest rates and harsh recovery measures, among others, against lending platforms.
While the banks and non-banking finance companies (NBFCs) are being directed to disclose the names of agents engaged by on their websites, digital lending platforms have been asked to tell their customers upfront the names of the bank/ NBFC on whose behalf they are disbursing loans.
“…outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them,” the RBI said in a communication to the scheduled commercial banks and NBFCs.The RBI further said that immediately after sanction of loan, a letter must be issued to the borrower on the letter head of the bank/ NBFC concerned.
“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,” the RBI said, and also asked the banks and NBFCs to create awareness about the grievance redressal mechanism.
Issuing these guidelines, the RBI said that often digital lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework.
Also it added, several complaints have come to notice against the lending platforms relating primarily to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behavior.
Although digital delivery in credit intermediation is a welcome development, the RBI said, concerns emanate from non-transparency of transactions and violation of the guidelines on outsourcing of financial services and Fair Practices Code of banks and NBFCs.
The banks and NBFCs, RBI said, “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.” Besides, it added, the banks and NBFCs must also meticulously follow regulatory instructions on outsourcing of financial services and IT services.
The RBI also said any violation by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously.