By - Kunjal Patil on January 2, 2023
Digital lending is a process that provides financial institutions an opportunity to make borrowings and raise productivity in order to facilitate lending services. Technology becomes considerably advantageous in digital lending since confidential information and sensitive details are kept un-disclosed. The pre-existing lending system has been drastically altered by the introduction of digital lending in India. From opening an account to loan application procedures, paperless transactions, and providing loans to no-credit customers, the lending sector has undergone a significant transformation as a result of digital lending. With the advent of digital lending, FinTech companies are encouraging paperless lending, which has opened up new and better opportunities and accessibility for the Indian lending market.
The Reserve Bank of India (RBI) published "Guidelines on Digital Lending" (Guidelines) to banks and non-banking finance firms (NBFCs) on September 2, 2022. This is in response to the press release the RBI made on August 10, 2022, on the implementation of the Working Group on Digital Lending's recommendations.[1]
The RBI had raised concerns pertaining to unauthorized digital lending in India back in 2020. Subsequently, in a press release, it was clarified that the high numbers of such unauthorized DLAs, excessive interest rates, hidden payment charges, and unethical loan recovery practices raise the requirement of disclosure of the NBFC and banks involved in digital lending. With this pretext, the RBI issues a report in 2021 addressing the concerns in customer protection and business conduct and gave recommendations to enhance protection norms in online borrowing.
The latest guidelines issued in the year 2022, which were implemented from December 1st of 2022 provide for a protectionist framework for customers. Additionally, it strengthened the technology and data requirements which address several issues in the digital lending platform. These guidelines enable and ensure transparency and compliance and help in understanding the way forwards.
Digital lending trends have evolved to become much more borrower friendly. The loan offering criteria where a credit score alone determined the creditworthiness of an individual has become much more expansive. In addition to this, there is more accuracy in the assessment of risk due to greater transparency. The advantage of an automated and data-centric loan approval process allows lenders to make informed decisions.
The eligibility and accessibility criteria allow security in lending transactions. Utilizing Fintech models such as APIs, to assist lenders in making quicker, more informed loan choices is known as fintech lending. This might involve weighing loan risk using different data sources and linking digital platforms to increase the pace of data exchange. By offering an alternate source of capital, fintech lending empowers P2P and business borrowers in enhancing their financial well-being and independence.
Digital lending trends are anticipated to find a number of prospects for the expansion of the field. India Lends introduced Digital Lending 2.0 in April 2020, a selection of touchless and contactless goods that includes loans, insurance, and a line of credit.
The fast adoption of digitalization in the BFSI sector has caused a significant shift in the lending environment over time. Some of the most well-known businesses in the financial sector that have made significant AI investments include Aire, Kabbage, and Kasisto. For instance, Kabbage employs AI algorithms to evaluate all the risks associated with lending money to a specific consumer, allowing managers to approve loans quickly.
The two fintech firms, UI Enlyte and Exaloan, announced in April 2022 that they are establishing a strategic organization. The corporations will connect their loan and digital asset platforms through this project. Digital lending companies like Finserv, FIS, Newgen Software, Nucleus Software, Pega, Temenos, and many of Indian, US, and Swiss origin companies have adopted various digital lending trends to grow in the global market.
The RBI regulates digital lending in India and its operations as a result of unchecked third-party participation, misspelling, data privacy violations, unethical recovery techniques, and high-interest rates. The 2022 guidelines also lay down the procedure for grievance redressal in addition to the procedure for the appointment of an officer. It was mandated that such suitable nodal grievances redressal offices have the competency to deal with complaints. The guidelines help in keeping data and customers open to transparent loan execution.
These disclosure norms promote consumer interests. The BI has also mandated reporting of loans to the credit Bureau irrespective of their nature or tenure. It additionally ensures that loan agreements do not contain unfavorable terms. REs also are required to ensure that the credit limits which are automatically increased must have the consent of the borrowers before such increases are taken on record.
The implementation of Fintech business models takes an experienced team that assists in compliance and abidance of the current legal framework. The team at KSK ensures that these requirements are met and ensures all that is required in the legal regime. KSK can also ensure digital lending companies have all requirements to be met.
The RBI as on September 2022 has published regulations for online lending applications. According to the central bank's instructions, the objective is to shield borrowers against dishonest lending practices
Digital lending is the process of disbursing and collecting loans via websites or mobile apps. It enables prompt disbursal and aids in cost reduction. Non-Banking Financial Companies (NBFCs) and Lending Service Providers (LSPs) work together to provide credit to consumers using the latter's platform.
Digital lending is the process of disbursing and collecting loans through websites or mobile apps. It enables prompt disbursal and aids in cost reduction. Non-Banking Financial Companies (NBFCs) and Lending Service Providers (LSPs) work together to provide credit to consumers using the latter's platform.
[1] https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12382&Mode=0