The Reserve Bank of India (RBI) has raised concerns regarding non-transparency in transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code vis-a-vis digital delivery in credit intermediation by banks and non-banking finance companies (NBFCs).
In this regard, the RBI has directed banks and NBFCs that have engaged digital lending platforms as their agents to follow its instructions, including disclosing the names of the 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 with him.
Loan agreement
As per instructions, banks and NBFCs must engage digital lending platforms as their agents to source borrowers and/ or to recover dues immediately after sanction but before execution of the loan agreement, and the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.
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 shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.
“Adequate efforts shall be made towards creation of awareness about the grievance-redressal mechanism,” the RBI said.
The RBI underscored that outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.
The central bank observed that lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of whichcustomers are not able to access grievance redressal avenues available under the regulatory framework.
“Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code issued to banks and NBFCs,” the RBI said.
Hence, the central bank reiterated 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 added.
Violation of norms
The RBI warned that any violation of its ‘Loans Sourced by Banks and NBFCs over Digital Lending Platforms: Adherence to Fair Practices Code and Outsourcing Guidelines’ 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