Recently, the Reserve Bank of India announced fresh rules and regulations surrounding digital lending to check for frauds and malpractices. The announcement is seen as an outcome of rampant cheating and fraud cases being reported in the sector.
Here’s a detailed look at RBI’s new digital lending norms. Let’s begin by understanding why these rules are required.
RBI announced the new digital lending rules primarily to manage the entire ecosystem. The new rules have been formulated as per the recommendations received from a working group set up for digital lending. Here are some of the challenges or problems faced by the digital lending sector that were highlighted by the working group:
Some of the highlights of the new digital lending rules that were introduced by RBI are:
As per RBI’s new digital lending norms, digital lenders will be categorised into these areas:
The new rules introduced by the RBI will cover only the type 1 lending entities. Type 2 lenders to have their own regulators for the management of rules on digital loans. Type 3 lenders to fall under government purview requiring the introduction of a new law to regulate them.
With the introduction of these digital lending rules, the Reserve Bank of India has tried to make digital lending safe for borrowers in the country. Borrowers will benefit from these guidelines as rampant malpractices and frauds will slowly come down in the digital lending ecosystem.
Digital lending involves quick online loan disbursal in an effective and convenient manner as compared to the traditional method. The digital ecosystem involves the usage of enhanced automation and blockchain that allows lending institutions to use automated processes for loan approvals and disbursals.
Some of the benefits of digital lending include easier loan access for borrowers, quick disbursal, minimal documentation, and easy access to credit for first-time borrowers.
Until now digital lending was relatively costlier in India due to the absence of regulations or cap on interest rates. However, since the RBI has now introduced regulations on digital lending, these may become slightly affordable with rate caps.
Yes, digital lending is legal in India. Depending on the type of entity offering lending services, these will either come under RBI governance or government laws.
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