Report of the Working Group on Digital Lending including ...

Report of the Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps

Reserve Bank of India November 18, 2021

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Acknowledgements

The Working Group expresses its gratitude to the Governor, Reserve Bank of India, Shri Shaktikanta Das for entrusting the responsibility on the Group to comprehensively study all aspects of digital lending activities to enable an appropriate policy approach. The Group invited inputs and held virtual interactions with various stakeholders including financial institutions, government bodies, law enforcement agencies, academicians, and FinTech associations/ groups. The diverse interactions and different perspectives helped the Group in getting a holistic view of the nascent digital lending ecosystem. The Group would like to place on record its appreciation for all their valuable inputs, which have immensely helped in shaping this Report. The Group would like to commend the rigorous work put in by the core secretarial team of the Department of Regulation, RBI, led by Shri Chandan Kumar, General Manager and consisting of Shri Anuj Sharma, AGM; Shri Lakshmana Koyya, Shri B G Gowtham Kumar Naik, and Shri Aditya Sood, Managers. The Group would also like to acknowledge and appreciate the contribution of the secretarial teams from Department of Supervision (Shri Susheel Raina, DGM; Shri A G Giridharan, DGM; Shri Nethaji B, DGM; Shri Varun Yadav, AGM; and Ms. Tricha Sharma, AGM) and Department of Payment and Settlement Systems (Shri Anuj Ranjan, GM and Shri Brijesh Baisakhiyar, AGM). The Group would also like to express gratitude to the Legal Department (Ms. Manisha Ranvah, ALA) and all the Regional Offices of Reserve Bank of India for the inputs provided.

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Table of Contents Abbreviations ....................................................................................... 4 Glossary ............................................................................................6 Executive Summary............................................................................. 10 Section 1: Introduction.......................................................................... 14

1.1 Constitution of the Working Group...........................................................................14 1.2 Foreground ..................................................................................................................15 1.3 Processes Followed ...................................................................................................15 1.4 Broad Approach ..........................................................................................................16 Section 2: Digital Lending Landscape ....................................................... 19 2.1 Meaning: Digital Lending...........................................................................................19 2.2 Digital Lending Eco-System......................................................................................20 2.3 Global Scene...............................................................................................................22 2.4 Indian Scene ...............................................................................................................23 2.5 Trends and Future ......................................................................................................30 Section 3: Regulatory Policy Approach to Digital Lending ............................... 31 3.1 Extant Indian Legal Regimes....................................................................................31 3.2 Global Regulatory Practices .....................................................................................33 3.3 The Case for Regulatory/ Supervisory Review in India........................................36 3.4 Recommendations and Suggestions on Statutory-Regulatory Approach .........42 Section 4: Technology Standards of Digital Lending...................................... 51 4.1 Factors Spurting Growth of Digital Lending in India .............................................52 4.2 Digital Lending Lifecycle............................................................................................55 4.3 Regulatory Perspectives of Digital Lending Technology......................................57 4.4 Recommendations/ Suggestions .............................................................................63 Section 5: Financial Consumer Protection .................................................. 70 5.1 Extant Frameworks in India ......................................................................................70 5.2 Global Practices..........................................................................................................74 5.3 Conduct Aspects of Digital Lending in India...........................................................76 5.4 Recommendations/ Suggestions .............................................................................86 Gist of Recommendations in the Report .................................................... 93 Gist of Suggestions/ Issues for Future Examination ...................................... 98 Annex A - Synopsis: Inputs received from Stakeholders................................101 Annex B - Details of Interfaces and List of Entities.......................................128 Annex C - Extracts of Sample Survey Data on Digital Lending ........................130 Annex D - List of Money Lending Laws in India...........................................134 Annex E - Global Practice in STCC Regulation...........................................135 Annex F - Prescribed Format of Key Fact Statement/ Fact Sheet.....................139 Annex G - List of Statutes dealing with Usurious Interest Rates.......................140 Annex H - Rules to stop Debt Traps by CFPB, USA.....................................148 Bibliography .....................................................................................149

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API AI AML/ CFT APR ASIC BC BIS BNPL BR Act BSL CBIRC CDD CIC CICRA CoR DLA EDD EMI FCA FLDG FPC FSB IBA ICT IRDAI IT Act KFS KYC LEA LSP MFI ML MI MLC NBFC NBFC-AA NBFC-P2P NCRB PBoC PII RE RMB RoC SACC

Abbreviations

Application Programming Interface Artificial Intelligence Anti-Money Laundering/ Combating the Financing of Terrorism Annual Percentage Rate Australian Securities and Investments Commission Business Correspondent Bank for International Settlements Buy Now Pay Later Banking Regulation Act, 1949 Balance Sheet Lender China Banking and Insurance Regulatory Commission Customer Due Diligence Credit Information Company Credit Information Companies (Regulation) Act Certificate of Registration Digital Lending Application Enhanced Due Diligence Equated Monthly Instalment Financial Conduct Authority First Loss Default Guarantee Fair Practices Code Financial Stability Board Indian Banks' Association Information and Communication Technology Insurance Regulatory and Development Authority of India Information Technology Act, 2000 Key Fact Statement Know Your Customer Law Enforcement Agency Lending Service Provider Microfinance Institution Machine Learning Market Intelligence Micro Lending Company Non-Banking Financial Company Non-Banking Financial Company-Account Aggregator Non-Banking Financial Company-Peer to Peer Lending Platform National Crime Records Bureau People's Bank of China Personal Identifiable Information Regulated Entity Ren Min Bi Registrar of Companies Small Amount Credit Contract

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