RBI flags concerns over non-transparency, violation of norms in digital transactions

The Reserve Bank of India (RBI) has raised concerns over non-transparency in transactions and violation of extant guidelines on outsourcing of financial services and fair practices code issued to banks and non-banking finance companies (NBFCs).

In a notification issued on Wednesday, the central bank said that banks and NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the fair practices code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services, it said.

The apex bank said that it has observed that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework.

In the recent past, there were several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behavior, it said.

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The apex bank said that digital delivery in credit intermediation is a welcome step, but the onus is on  banks and NBFCs to ensure that regulatory norms are followed by their agents. The agents must follow regulatory guidelines, including disclosing the names of  platforms engaged as agents on their websites, and ask the agents to disclose upfront to the customer the name of the bank/ NBFC on whose behalf they are interacting.

Before execution of the loan agreement, the sanction letter should be issued to the borrower on the letter head of the concerned bank and NBFC, while a final copy of the same must be furnished at the time of disbursement of loans, it said.

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The RBI directed the banks and NBFCs to monitor their digital lending platforms and create awareness about the grievance redressal mechanism.

"Any violation in this regard by banks and NBFCs (including NBFCs registered to operate on 'digital-only' or on digital and brick-mortar channels of delivery of credit) will be viewed seriously," the RBI said.

By Chitranjan Kumar