Digital Lending: A look at India’s Regulatory Framework for Digital Credit

Juhi Puntambekar discusses how digital lending typically involves three entities: the lender (banks or non-banking finance companies), the digital lending platform (acting as an outsourcing agent for regulated entities), and the consumer (the borrower). She highlights the rapid growth of digital lending in India, driven by a large unbanked population and high data consumption.

The discussion shifts to the role of the Reserve Bank of India (RBI) in regulating digital lending. The RBI's intervention started around 2020, focusing on ensuring transparent loan agreements and sanction letters, controlling data access by digital lending apps, and addressing unethical collection practices. These steps were crucial given the predatory lending and data privacy concerns in the market.

The panel also touches on the RBI's digital lending guidelines, which aim to safeguard financial stability and consumer interests. These guidelines cover aspects such as reporting to credit bureaus, default loss guarantees, and data practices.

The conversation also explores the benefits of self-regulation in the fintech sector, which it is argued is necessary given the diversity of fintech products and the need for industry-specific guidelines.

Another critical area discussed is India's Data Protection Law and its impact on fintech companies. The law, still evolving, emphasises consent management and responsible data practices. Companies are adapting to these changes, with larger firms finding it challenging to overhaul legacy systems.

Current regulations provide sufficient clarity for digital lending, with the only pending issue being the specifics of self-regulating organisations (SROs). An important future consideration is the simplification and clarification of legal issues in the digital lending space to ease business operations; sometimes relatively simple issues can significantly impact businesses.