Loan Goes Digital, But Recovery Still Needs Feet On the Street: RBI Official

The digital infrastructure has made the loan sanctioning system adopt an online mode but the loan recovery still requires a 'feet on the street', says Swaminathan J, Deputy Governor of Reserve Bank of India (RBI).

Speaking at a media event in Mumbai, the deputy Governor of RBI noted that with the digital infrastructure at the place, many fintech players are giving loans to customers with poor credit profiles and on default using aggressive recovery tactics.

"While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often times with poor credit profiles" said the deputy governor.

He emphasised that the business model of many fintech platforms involves offering small-value loans to customers who often have poor credit profiles. This has led to the adoption of aggressive recovery strategies, which on many occasions crosses ethical boundaries.

He also highlighted one particularly concerning practice that involves the invasion of customers' privacy, where recovery agents access the personal data and contacts of borrowers and use that as a threat practice.

Mr Swaminathan cautioned that such tactics not only infringe on individuals right to privacy but also risk damaging the reputation of regulated lenders associated with these fintech platforms.

He also highlighted RBI's regulations on outsourcing, that even though regulated financial entities delegate certain activities to third parties, they remain ultimately accountable for the actions of their outsourced agents.

The deputy governor also noted that the digitisation allows banks and NBFCs to leverage data for greater insights into their customers' requirements and behaviour which can be used for developing bespoke products apart from facilitating better risk management and compliance.

He stated that the role of RBI as a regulator is to establish guardrails or a balanced framework that encourages innovation while ensuring that risks are managed prudently.

The deputy governor also indicated the primary goal of RBI is to ensure the stability and integrity of the financial system and not to hinder business operations.

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