Digital lenders seek clarifications from RBI on end-use cases, APR

Digital lenders are planning to seek clarifications from the Reserve Bank of India (RBI) on ambiguities pertaining to operational aspects of the digital lending guidelines, to ensure a seamless implementation of norms. 

Industry body Fintech Association for Consumer Empowerment (FACE) is looking to approach the regulator to get a clear understanding of the use-cases where exceptions would be allowed, wherein money does not go into the bank account of borrowers directly. “A clear understanding of permissible end-use cases for digital lending will address the ambiguity,” Sugandh Saxena, CEO, FACE, told Business Standard.

The industry is also looking to get a fair understanding of how the annual percentage rate (APR) will be calculated. The RBI has said APR will be based on an all-inclusive cost and margin, including cost of funds, credit cost and operating cost, processing fee, verification charges, maintenance charges, etc, except contingent charges like penal charges, late payment charges, among others.

“The regulator has established a formula for microfinance for every lender to follow. So, we need to understand if the regulator will likewise suggest a formula for digital lending for uniformity,” said Saxena.

The industry players are not seeking any forbearance on the guidelines that the RBI has come out with because they were on the expected lines. And the idea is to comply with the regulations according to the regulator’s expectations.

“The members are implementing the guidelines. While website and app disclosures can be done quickly, others require more work and time due to complex changes,” Saxena said.

There are reports that payment aggregators are also looking to knock on the RBI doors as their role has been eliminated.

The RBI, earlier this month, came out with guidelines aimed at firming up the regulatory framework over such activities, wherein it categorically specified that lending business can only be carried out by entities regulated by it or other such competent authorities under the law.

Experts have reckoned that adherence to the stricter norms is likely to drive up compliance cost and increase operational complexity of their business models, resulting in a brief period of growth slowdown in this space.

“The number of steps we have taken, the digital lending guidelines we have come out with, is largely supportive of the fintech sector. We have to see what risks any new innovation brings to the economy and those risks will have to be mitigated. Unless the regulator acts, you will have uncontrolled risks developing. As a regulator we have to see that there is no unknown risk buildup because ultimately the impact of that will be adverse,” Shaktikanta Das, RBI governor, said recently.