The Indian government is contemplating the introduction of laws to ban illegal online lending platforms and mobile apps offering digital loans. Two officials familiar with the matter revealed on Monday that the central government aims to protect individuals borrowing money through these platforms. Borrowers often face extremely high-interest rates, and in cases of non-repayment, they experience harsh treatment, leading some to choose a tragic end.
RBI Prepares Regulatory Framework for Digital Borrowers
Irregular entities have been offering loans easily in recent years, but their adoption of improper loan recovery systems has resulted in some tragic suicides. The government has previously banned several unauthorized apps, and now the RBI may provide approval to regulate third-party service providers. The Reserve Bank of India (RBI) has also cautioned digital loan providers on multiple occasions. Both officials, speaking on the condition of anonymity, mentioned that irregular loan-giving apps, especially those hosted abroad, are still operating without proper scrutiny. Consequently, the RBI has prepared a regulatory framework to control third-party service providers dealing with borrowers.
RBI’s Long-standing Cautionary Approach
The RBI regulates entities involved in lending through special rules. For example, loans are directly deposited into the borrower’s bank account by regulated entities. Any service charges for third-party loan service providers (LPSPs) are paid by regulated entities, not by the borrowers. However, irregular digital loan-giving apps are currently working without proper checks, according to the officials. RBI Governor Shaktikanta Das took steps to strengthen the internal monitoring system following the increase in suicides related to personal loans. A few days ago, the RBI identified high growth figures in certain segments of personal loans, advising banks and NBFCs to strengthen their internal monitoring systems.
Unprecedented Rise in Unregulated Loans
Many companies and apps in the country offer online loans, and the popularity of digital lending platforms has surged in recent years. Borrowers often prefer these platforms over traditional banks because they provide loans quickly and with minimal formalities.