RBI warns banks, NBFCs on lack of transparency in digital transactions

The Reserve Bank of India (RBI) has warned banks and non-banking financial companies (NBFCs) against non-transparency in digital transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code, in the wake of a spate of complaints from customers.


In a notification issued to banks and NBFCs, the RBI said, ‘… of late, there are 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 behaviour.’


It also issued a set of guidelines to digital lending platforms of banks and NBFCs on disclosures to their customers.


The regulator has cautioned against many digital platforms that have emerged in the financial sector claiming to offer hassle-free loans to retail individuals, small traders, and other borrowers. Banks and NBFCs are also seen to be engaging digital platforms to provide loans to their customers. ‘It has further been observed that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank or NBFC at the backend. As a result, customers are not able to access grievance redressal avenues available under the regulatory framework,’ the RBI said.


In addition, some NBFCs have been registered with the Reserve Bank as ‘digital-only’ lending entities, while some NBFCs are registered to work both on digital and brick-mortar channels of credit delivery. ‘Thus, banks and NBFCs are observed to lend either directly through their own digital platforms or through a digital lending platform under an outsourcing arrangement,’ the RBI said.


The RBI circular said outsourcing of any activity by banks and NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them. ‘Wherever banks and NBFCs engage digital lending platforms as their agents to source borrowers and/ or to recover dues, they must disclose the names of digital lending platforms engaged as agents on the website of banks or NBFCs. Digital lending platforms engaged as agents should be directed to disclose upfront to the customer, the name of the bank/ NBFC on whose behalf they are interacting with him,’ it said.


‘Immediately after sanction but before execution of the loan agreement, the sanction letter should be issued to the borrower on the letter head of the bank/ NBFC concerned,’ the RBI said.


‘A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement should be furnished to all borrowers at the time of sanction/ disbursement of loans. Effective oversight and monitoring should be ensured over the digital lending platforms engaged by the banks/ NBFCs,’ it said.


‘Adequate efforts should be made towards creation of awareness about the grievance redressal mechanism,’ it said.


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 has warned.


‘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,’ the RBI circular said.

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