Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday flagged concerns related to digital lending including a spate of complaints regarding usurious interest rates, unethical recovery practices and data privacy issues and emphasised the need for the FinTech industry to focus on governance, business conduct, regulatory compliance and risk mitigation to ensure that customers were protected even as their needs were served.
“The RBI has endeavoured to address these issues proactively and, as early as in June 2020, regulatory guidance was provided to our Regulated Entities,” Mr. Das told participants at the Global FinTech Fest in Mumbai. “This guidance, among other things, mandated that digital lending platforms disclose the names of the banks/ NBFCs upfront on whose behalf they were providing credit,” he added.
The regulatory guidelines aimed to balance customer protection and business conduct on the one hand and support innovation on the other, he observed.
“Let me emphasise that while innovations are very much welcome, they must be responsible and should enhance the efficiency and resiliency of the financial system while benefitting the consumers,” Mr Das stressed.
He said robust internal product and service assurance frameworks, together with fair and transparent governance, would go a long way to safeguard the interest of customers and ensure long-term sustainability of the FinTech entities themselves.
“The level of due-diligence and oversight exercised by the regulated entities on their outsourced activities needs to be strengthened further. This would help in proactive mitigation of risks at the incipient stage itself,” he said. “The need of the hour is to ensure assurance of safety after following a process of green-lighting (whitelisting) and due-diligence by the regulated entities,” the RBI chief observed, citing material concerns regarding the unbridled mushrooming of digital lending apps.
“The RBI, in association with other relevant agencies, is taking steps to address this issue and take further steps as may be necessary,” he added.
He said adequate attention must be placed by digital lending entities on governance and conduct issues.
“At the end of the day, sustainability of any FinTech activity or business is about enhanced customer protection, better cybersecurity and resilience, managing financial integrity and strong data protection,” he said.
Assuring the FinTech community that the RBI would continue to encourage and support innovation, he said the regulator would expect the ecosystem to pay attention to governance, business conduct, regulatory compliance and risk mitigation frameworks.
“The fintech road ahead will witness ever growing traffic in addition to the large number of existing players who are already there. It is, therefore, imperative that every player on this road follows the traffic rules for his/her own safety and the safety of others,” he highlighted.
Mr Das said the RBI’s focus had always been on encouraging innovation by providing an enabling environment. As the guardian of financial stability, the RBI would remain watchful of any undue risk build up and respond to them, he cautioned.
Noting that a wave of changes brought in by FinTech had had a positive impact in terms of enhancing inclusion and further penetration of financial services, he said these developments had at the same time also ushered in an era where an enormous amount of consumer data was being generated and leveraged upon by a few entities (the so called BigTechs) by virtue of their huge customer base.
“Such developments raise concerns on concentration risk and potential spillovers as their level of engagement with the financial system strengthens” over time, Mr. Das pointed out.
“Therefore, potential risks to public policy objectives of maintaining competition, market and business conduct, operational resilience, data privacy, cybersecurity and financial stability need closer attention,” he added.
