“Online Lending Platforms Do Not Fall Within our Purview”- RBI tells Delhi HC
Moneylife Digital Team 27 July 2021
The Delhi High Court (HC) has directed Reserve Bank of India (RBI) to come out with a clear stand for regulation of online lending platforms which are charging exorbitant interest rates from borrowers. 
 
A report from LiveLaw says that  a division bench of chief justice DN Patel and justice Jyoti Singh told RBI: "Be quick in reacting in this matter". 
 
The Delhi HC was hearing a petition filed by Dharanidhar Karimojji though senior advocate Prashant Bhushan. The plea seeks for regulation and control of online digital lenders doing business through mobile applications by fixing the maximum rate of interest that may be charged by them. 
 
It also seeks appropriate directions for stopping harassment of borrowers through recovery agents and setting up of grievance redressal mechanism for borrowers in every state.
 
The petitioner has highlighted that online lending platforms are virtually an extortion racket, charging exorbitant rate of interest from naive people. It was alleged that the rate of interest goes up to 500% per annum along with arbitrary upfront processing fees up to 30%.
 
The bench has also asked the central government to sit with RBI and see what steps can be taken to curb the menace
 
During the hearing, senior counsel Bhushan cited that the RBI has sufficient powers to regulate these activities under Section 45 of the RBI Act. 
 
He pointed out that though RBI acknowledged this menace in June 2020, it has not done much to prevent the same. 
 
He referred to a caution notice issued by RBI on 23 December 2020 in this regard. He also cited a circular dated 24 June 2020 issued to all scheduled commercial banks and non-banking finance companies (NBFCs) regarding loan sourced by them though digital lending platforms.
 
Taking cognizance of the spurt in digital lending by online platforms and mobile apps, the RBI had also set up a working group to evaluate and recommend measures on digital lending. This group was to also identify risks posed by unregulated digital lending to financial stability, regulated entities, and consumers.
 
“RBI is fully aware of the problem. But all they have done is that in January this year they constituted a committee of 4 internal members and 2 external people to go into these problem and suggest the means to regulate. They gave 3 months to the Committee to file a report. Those 3 months expired in April. But in May 2021 when RBI filed its counter affidavit, they said nothing about the Committee report. Has it come or not, it is not known. Meanwhile, this menace is going on unchecked. Why not taken steps under the powers they already have under Section 45?“ Mr Bhushan asked.
 
Advocate Ramesh Babu MR appearing for RBI responded that the central bank only regulates banks and NBFCs. 
 
"Online lending platforms are different. They do not fall within the purview of RBI. The circulars referred to were issued to banks and NBFCs, cautioning them not to use such platforms," he submitted in the HC.
 
When asked who is the competent authority, Mr Babu responded, "Government! Union of India should come out with regulations."
 
The HC observed that RBI cannot shirk off its responsibility and it has to take appropriate steps. 
 
"RBI cannot merely say we don't have powers...Suppose NBFCs lend money of smaller amounts to needy persons, say less than Rs1 lakh, and charge 2% interest per day, will you allow? Will you say we have no powers so do whatever you want?" chief justice Patel asked the RBI counsel. 
 
While acknowledging fact that there is no "direct provision" under the RBI Act for regulation of rate of interest for online lending, the chief justice asked Babu to seek instructions on the suggestions, if any, made by the Committee, the LiveLaw report said. 
 
While the HC has now granted more time to RBI to respond in conjunction with the central government but it also admonished the RBI, "After receiving this petition, did you apply your mind for this difficulty? You should think about this kind of eventuality. So many frivolous PILs are being filed these days that are dismissed with costs. But this PIL is one of the finest!”
 
The HC suggested to the banking regulator that it could finalise the rate of interest for online lending, categorised based on borrowed amount. 
 
"We expect that something should come out from you. Fix the rate of interest. Let them challenge, we will see what to do. But this much exorbitant rate and processing fees cannot be allowed," chief justice Patel said while concluding the hearing.
 
Comments
d61defcol
4 months ago
These are known in the trade as "payday loans" and can easily be resolved by RBI/or GoI by -

a) placing a cap on the amount being loaned
b) placing a cap on the APR
c) placing a 96 hour gap between application and payout in which time the lending company has to float the enquiry with other lenders so that the customer can get a better rate
d) specifically for Indian conditions, a payday lender needs to be registered like with the Chit Funds Act
https://legislative.gov.in/sites/default/files/A1982-40.pdf
saharaaj
Replied to d61defcol comment 4 months ago
They are microfanancers mostly supported /sponsored by local powerful and influential politicians
spicesich
4 months ago
PEOPLE SHOULD CONFIRM FROM BANKS BEFORE DOING SUCH ADVENTURE.IT IS A VERY DANGEROUS TREND FROM THE PUBLIC POINT OF VIEW. NOBODY WILL HELP THEM OUT.
parimalshah1
4 months ago
if credit cards come under the RBI as a regulator the online landing too must be under RBI. CC is like an online with a 30+ per cent interest rate if full amount due is not paid before due date and late fees too are exorbitant, but act as good deterrent.
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