Shaktikanta Das, governor, Reserve Bank of India unveiled the fifth monetary policy of FY 2023-2024 on Friday. Of the many major announcements that were made in the session, the Reserve Bank of India (RBI) proposed a fintech repository to make it easier to share important information. This idea comes as more people in the country are borrowing money, especially through digital loans, as they look for multiple credit options quickly.
“We have observed various issues related to the web aggregation of loan products that adversely affect consumers’ interests. In response to these concerns, the Reserve Bank of India will establish a regulatory framework for such practices. This initiative aims to enhance transparency in digital lending.” the RBI governor said.
He laid emphasis on the fact that banks and NBFCs are increasingly teaming up with fintech companies and the establishment of a fintech repository would enhance the understanding of fintech advancements and bolster this sector. He mentioned that the Reserve Bank Innovation Hub aims to make this operational by April 2024 or possibly sooner and fintech firms shall be encouraged to contribute pertinent information to this repository.
Saikrishnan Srinivasan, MD, Experian Credit Information Company of India is optmistic about the proposal and believes that this step will enable better coordination of operations across financial institutions, and their partners to strengthen the credit ecosystem.
“The 32nd Monetary Policy has brought forth a list of optimistic announcements that will help streamline lending and mitigate credit risk. The decision to introduce a unified regulatory framework is a welcome move, as it will enable structured operations in credit pricing and management. The regulatory framework for digital lending, specifically web aggregation for loan products, will enhance customer-centricity and increase transparency." he said.
According to Movin Jain, founder of Skydo, a cross border payments platform, RBI's step is crucial for all stakeholders as they will have access to reliable data, fostering a deeper trust and a supportive environment for cross-collaboration, growth and innovation. The Repository's focus on technologies like DLT, AI/ML, and others, shows a commitment to understanding and supporting technology-led innovations in the financial sector.
“Lending is an easy product to show topline revenue early on, but very difficult to run in mid to short term profitably. As more non-banking and fintech players choose to lend, we might need to have more guardrails to protect customer interests, aggressive collection techniques, irresponsible bureau reporting, unfair fees/ charges will all keep erupting so more transparency is welcome.” said Aishwarya Jaishankar, co-founder of Hyperface Technologies stating that frameworks and regulations are often prescriptive and when new entities enter the market, they ensure that adequate guardrails are there to run lending in a customer centric market.
With the growth in digital loans and credit options, analysts and market experts have often argued towards having a regulatory environment that provides fintech’s with necessary guidelines and standards that will promote responsible lending practices.
According to Geeta Chauhan, co-founder of HiWi fintech, RBI’s fintech regulatory framework will help in striking a balance between encouraging innovation and safeguarding the financial system's integrity.
“Digital lending does provide convenient access to financial products but often pose challenges such as opaque terms, predatory lending practices and inadequate data protection, a robust regulatory framework can set clear guidelines mandating transparency in loan terms and interest rate. This ensures that consumers are well informed about the financial products they engage in, empowering them to make sound decisions.” she commented.
Bhuvan Rustagi, co-founder and COO of Per Annum and Lendbox said, "RBI’s announcement to establish a regulatory framework around Fintech, particularly digital loans is a fantastic move in my view as currently the space is highly fragmented when it comes to options available for borrowers and the information being used to assess the same, and also many borrowers fall victim to predatory lending as Fintechs don’t have to follow any framework when it comes to borrower assessment as well as collection practices being in an unregulated space. This is a welcome move that will benefit not just the consumers but also existing players who are trying to do things the right way by weeding out the bad apples."
Karun Arya, CGO of GetVantage also appluaded RBI's move and said that the consumer lending space has been beset by irregularities not just in India, but across emerging markets and needs more acute governance and as India stack grows stronger and more interoperable, the long-term benefits will be seen across the ecosystem for both traditional financial institutions and new-age fintech companies.
