Digital lending firms should operate under license granted: RBI governor

Digital lending companies should first seek permission from the central bank before embarking on any ventures they are not licensed to do, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday.

An RBI notification last month banned the loading of prepaid payment instruments (PPIs) from lines of credit, shocking Buy Now & Pay Later (BNPL) companies and the wider industry fintech.

“Companies must operate under the licenses granted to them. If they do anything beyond that, they must ask our permission. Without authorization, if they engage in activities for which they do not have a license, it is not acceptable. There will be an accumulation of risk and we cannot allow that,” he said at an event hosted by Bank of Baroda in Mumbai.

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

Industry experts said the RBI ban would affect at least around 8 million BNPL customers after companies halted offerings or slowed down the search for new customers. Fintech companies had launched products around credit that were driven by non-bank financial companies (NBFCs) and delivered through PPIs.

Some new-era digital lending companies have been accused of unscrupulous practices, including charging customers exorbitant interest rates and harassing them. These businesses mushroomed during the pandemic when the need for instant loans peaked due to economic distress.

The RBI formed a task force which made a number of recommendations on how these companies should be regulated.

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