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The Reserve Bank of India (RBI) working group, which was formed to study various aspects of digital lending activities in January, 2021, has delayed the submission of its report.

The group headed by Jayant Kumar Dash, RBI executive director, was supposed to submit the report by mid-April, three months after the group was formed. The report was supposed to form the basis for setting guidelines for India’s fast-growing digital lending sector.

Sources said the whole process got delayed because of the Covid-19 as the group members working with the central bank were assigned with other important pandemic-related jobs to complete with a deadline.

“Several industry players and users are keenly awaiting the report. It is an extremely important job. The delay looks fishy,” said an industry official, adding that it may lead to another round of proliferation of illegal lending apps.

Final draft yet to be prepared

The working group had met several times in the last two months, and consulted with many top officials of National Payments Corporation of India (NPCI), tech companies such as Google, and senior police officers, and sought their inputs. An official close to the working group said the final draft of the report is yet to be prepared.

The RBI announced the setting up of the working group on January 13, 2021, with a deadline of three months to submit the report. Several police cases and a few suicides in the preceding months had forced the central bank to swing into action.

Need to regulate the sector

The central bank, however, does not want to disturb the innovation in the mobile-based lending space. It believes fintech and online lending are the future. Of course, it can’t leave the sector unregulated and help unorganised and fly-by-night players mushroom, at the cost of hapless patrons.

On December 23, 2020, the RBI had sent out an advisory following several news reports about the high-handed recovery methods employed by some online lenders. The RBI had asked consumers to report such apps to any of the law enforcement agencies or file an online complaint with the banking regulator.

But soon after, a spate of suicides of victims allegedly over name shaming and blackmailing by the online money lenders forced the RBI to set up a working group and look into the matter more seriously.

The market for app-based online lenders grew exponentially in India since April 2020 as the Covid-19 pandemic and the national lockdown pushed thousands of people into penury. The banking regulator was appalled to see the pace at which the apps flooded the market off their radar.

Even as the RBI working group went about collecting information, there were fresh cases of harassment and social shaming tactics employed by the online lenders. Many industry officials raised their voice to prod the regulator to introduce a working framework.

“Every legitimate player in the market is eagerly awaiting the report and the guidelines. This will weed out all illegal players in the market who employ unethical ways to squeeze out money from the customers,” said an industry official.

India home to 82% online lenders

India is the world’s biggest market for mobile lending apps on Android phones with the country home to nearly 82% of all online lenders across the globe. According to a research study by CloudSEK, a Bengaluru-based digital risk management company, India has 887 active loans apps as per the study. The US came at a distant second with 112 apps. Pakistan took the third place with 34, closely followed by South Africa (30) and Kenya (20). The study however excluded the number of apps available in China for the complexity in compiling them in the absence of available data.

In most developed markets, credit cards filled the space for quick personal loans of small amounts. In India, banks have been extremely cautious of issuing credit cards after delinquencies piled up a few years ago creating a mess for them.