Digital lending firms should operate under licence granted: RBI governor

Central bank last month banned the loading of prepaid payment instruments from credit lines

Digital lending firms should first seek the central bank’s permission before getting into businesses they are not licensed for, said Shaktikanta Das, governor of Reserve Bank of India (RBI), on Friday.

A RBI notification last month banned the loading of prepaid payment instruments (PPIs) from credit lines, shocking buy-now-pay-later (BNPL) companies and the wider fintech industry.

“The firms should operate under the licenses granted to them. If they are doing anything beyond that then they should seek our permission. Without permission, if they are engaging in activities for which they have no license then it is not acceptable. There will be risk build-up and we cannot allow that,” he said at an event organised by the Bank of Baroda in Mumbai.

“We want to support innovation and at the same time we want the entire ecosystem to grow in an orderly and regulated manner so that there is no compromise on financial stability”, he said, adding the central bank’s digital lending norms will be made public in a few weeks.

Industry experts have said RBI’s ban would affect at least about 8 million BNPL customers after firms either stopped their offerings or slowed down fetching new clients. Fintech firms had launched products around credit that were driven by non-banking financial companies (NBFCs) and delivered through PPIs.

Some new-age digital lending firms have been accused of unscrupulous practices that included charging customers exorbitant interest rates and harassing them. Such firms mushroomed during the pandemic when the need for instant loans peaked because of economic distress.

The RBI had formed a working group that made a number of recommendations on how such firms should be regulated.