RBI releases direction that impose conditions to Banks and NBFCs lending through digital lending platforms
The Reserve Bank of India ("RBI") through a notification dated June 24, 2020, has imposed several conditions on scheduled commercial banks and NBFCs who lend through digital lending platform. The notification was issued in light of several complaints that were received from individuals against digital lending platforms pertaining to exorbitant interest rates, harsh recovery methods, unauthorised use of personal data and non-transparent method of calculating interest rates.
Further, it was observed by the RBI that several digital lending platforms have been portraying themselves as lenders without disclosing the name of the NBFCs or scheduled banks they have partnered with, as a result of this, customers have not been able to access the grievance redressal mechanism available under the RBI framework.
Through this notification, the RBI has made it mandatory for all NBFCs and scheduled banks to follow the 'Fair Practice Code' and regulatory instructions issued by RBI on outsourcing of financial services and IT services.
Further, RBI has also laid down the following specific instructions to banks and NBFCs that engage digital lending platforms as their agents to source borrowers or recover dues:
- Names of digital lending platforms engaged by the banks must be mentioned on the bank's website;
- Digital lending platforms acting as agents, must disclose upfront to the customers, the name of the bank on whose behalf they are interacting with the customer.
- After sanction of the loan and prior to execution of the loan agreement, a sanction letter must be provided on the letterhead of the relevant NBFC or bank.
- A copy of the loan agreement along with all enclosures must be provided to the borrower during sanction or at the time of disbursement of the loans.
- The banks and NBFCs must ensure effective oversight and monitoring on the digital lending platforms engaged by them.
- Adequate efforts to be made towards creation of awareness on the grievance redressal mechanism.
The RBI in its notification has also stated that violation of these directions will be viewed seriously.
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