Reserve Bank of India plans ‘public repository’ to curb unauthorized digital lending apps

The Reserve Bank of India (RBI) has announced its intention to create a public repository of digital lending applications deployed by its regulated entities, such as banks and financial institutions. The initiative is expected to enable consumers to identify unauthorized lending apps and avoid harassment.

“The Reserve Bank has taken several measures for the orderly development of the digital lending ecosystem in India. As a further measure in this direction and to address the problems arising from unauthorised digital lending apps (DLAs), the Reserve Bank proposes to create a public repository of DLAs deployed by its regulated entities,” RBI’s Governor Shaktikanta Das said after the 50th meeting of the Monetary Policy Committee.

“The regulated entities (REs) will report and update information about their DLAs in this repository. This measure will help the consumers to identify the unauthorised lending apps,” Das pointed out.

The announcement comes months after RBI announced it is considering establishing a Digital India Trust Agency (DIGITA) to curb the rapid expansion of illegal digital lending apps. DIGITA would enable verification of digital lending apps and maintain a public register of verified apps.

Digital lending refers to mobile and web-based applications with user interfaces facilitating digital lending services. Consumers in the world’s fastest-growing major economy have transitioned from taking out loans through traditional banks to using mobile phones and the Internet for borrowing. This is a major shift in the Indian lending landscape due to rapid internet penetration.

While digital lending apps are popular for sanctioning loans within hours, they often charge exorbitant interest rates as high as 25% annually. Fraudulent digital lending apps have also risen, causing harassment for consumers.

Despite the challenges, India’s digital lending market has grown due to faster turnaround time and the adoption of emerging technologies such as artificial intelligence. According to Redseer Strategy Consultants, digital lending in India is growing at a 40% compound annual growth rate (CAGR). The sector is projected to account for 5% of all retail loans by FY28, from about 2.5% in FY24 and 1.8% in FY22.

Socio-economic factors, demographics, technological advancement, infrastructure, and surge in credit demand are factors unique to India and are driving the growth of digital lending in the country, a report by Ernst & Young and the Digital Lenders Association of India (DLAI), said.

“Digital lending players (LendTechs) are growing beyond boundaries and constitute a significant portion of the overall Indian FinTech market. Their market share is further expected to rise to 60% of the total FinTech market by 2030,” the report read.

“Technology innovation is flourishing across the digital lending value chain. The use of artificial intelligence (AI) can further reorient processes and encourage good lending practices,” the report added.

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