Digital lending

Subject – Economy

Context – Digital lending: RBI panel pitches for tougher norms, separate law

Concept –

Digital lending is the process of availing credit online.
It consists of lending through web platforms or mobile apps, by taking advantage of technology for authentication and credit assessment.
Its increased popularity amongst new-age lenders can be attributed to expanding smartphone penetration, credit range flexibility, and speedy online transactions.
India’s digital lending market has seen a significant rise over the years.
Banks have launched their own independent digital lending platforms to tap in the digital lending market by leveraging existing capabilities in traditional lending.
A working group set up by the Reserve Bank of India (RBI) has proposed stringent norms for digital lenders, including a separate legislation to prevent illegal digital lending activities.
- The RBI says lending through digital mode relative to physical mode is still at a nascent stage in the case of banks (Rs 1.12 lakh crore via digital mode against Rs 53.08 lakh crore through the physical mode) whereas for NBFCs, higher proportion of lending (Rs 0.23 lakh crore via digital mode against Rs 1.93 lakh crore through the physical mode) is happening through digital mode.
- While banks have been increasingly adopting innovative approaches in digital processes, NBFCs have been at the forefront of partnered digital lending.

Key proposals

Digital lending apps should be subjected to a verification process by a nodal agency to be set up in consultation with stakeholders
The working group proposed the setting up of a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem
Disbursement of loans should be directly into bank accounts of borrowers.
Maintenance of a ‘negative list’ of lending service providers by the proposed SRO.