RBI’s strict guidelines made holes in 54% of lending apps illegal

New Delhi

Easy Loans…at the behest of your fingers… directly to your bank account…. You will find thousands of money-lending apps with such a golden promise on the Play Store. A few days ago, when RBI examined 1100 lending apps on different platforms, 600 i.e. 54% were illegal. Far from removing these apps, the number of lending apps has increased to 1290.

Actually, till now Google used to apply its own rules in placing or removing such apps on the Play Store. Under these rules, he had also removed many apps. But on August 10, RBI announced that it is going to release the list of registered lending apps. Only the lending apps included in this list can be kept on the Play Store.

More than a month and a half have passed since this announcement. Till now the RBI list has not been released. On September 2, the regulatory bank issued a guideline related to digital lending, but the list of registered apps has not come yet. Because of this, the Google Play Store is also confused about implementing its rules.

The RBI had received a total of 2562 complaints of the rigging of digital lending apps between 2020 and 2021. Since 2019, 64 people have committed suicide due to the recovery methods of these loan apps. It is believed that RBI has decided to issue a new guideline and list of registered apps because of the rigging of lending apps.

But despite this guideline, there are many such loopholes due to which digital lending will remain risky. Understand…what is the status of lending apps in India…how much will the situation change with the guidelines of RBI…and how do you identify the right lending app.

1) People don’t even know who is behind the app

What is the rule: According to the Central Reserve Bank, only commercial banks, urban co-operative banks, state co-operative banks, district central co-operative banks and non-banking finance companies (NBFCs) can give loans. These are called registered entities. An entity registered for digital lending can avail of the services of any lending service provider or digital lending app through outsourcing.

What is the problem: This system creates confusion for the common man. Because lending apps never directly mentioned in their description that they are themselves NBFCs or are associated with any registered entity.

Even the app description of Bajaj Finserv, the most popular credit service, does not mention that it is a registered NBFC.

There are more than 34 lakh apps on Google’s Play Store. It also has more than 1200 lending apps in India. There are also many of them with similar names. It is difficult to identify the right one in this crowd.

What is the rule: RBI says that any kind of fee or penalty from the borrower to the registered entity i.e. bank or NBFC themselves and that too in their account.

What is the problem: The borrower often does not know from which bank or NBFC the app is getting the loan. The interaction between the app and the customer is not monitored. In such a situation, many apps get loans from the bank, but in the name of fees and penalties, they collect money from the customer in their account.

What is the rule: According to the guideline, every registered entity has to give a Key Fact Statement to the customer before issuing the loan. This statement should contain the loan amount, the interest charged, annual interest rate, EMI amount and loan tenure.

What is the problem: Many apps claim that the loan amount will reach the account as soon as you download the app. In such loans, the customer gets to know about the rate of interest later. Apps sometimes show interest rates are something else and actually charge something else.

What is the rule: According to the guidelines, if there is a situation of recovery of the loan, then the registered entity can outsource this work to a lending service provider. But this information has to be given to the customer. Even if the lending service provider is being changed, this information will have to be given to the customer.

What’s the problem: It doesn’t happen. The customer does not even know who is coming for recovery. Many apps put pressure on the customer for loan recovery even without the knowledge of the bank.

In the 9th point of its guideline, RBI has said that registered entities i.e. banks and NBFCs should do a thorough investigation before giving work to any lending service provider.

Banks or NBFCs use these digital lending apps to grow their business. A bank assigns work to several lending service providers so that it can reach as many people as possible.

But not every lending service provider is thoroughly scrutinized in this process. It is not clear in the RBI guidelines what are the minimum requirements for a lending service provider.

Because of this ambiguity, each bank and NBFC scrutinizes these lending service providers on a different scale. Some scales are hard and some are very soft.