New Delhi: The RBI Working Group, which was constituted in January this year, in its report on digital lending including lending through online platforms and mobile apps, said the government should consider introducing a separate law to ban unregulated lending activities in the medium term. The group also suggested that the Central bank should also develop a separate framework styled for all the customer-facing activities of the RBI regulated entities such as banks, NBFCs, payment systems operators.
A research by the working group, which was led by the RBI’s executive director Jayant Kumar Dash, showed that more than half of the digital lending apps, (600 out of 1,100) were illegal apps.
“As the number of lending apps grow, this trend would spike, since a user downloading a lending app cannot identify if the app is legitimate or not,” said the expert group, adding that it was likely that several copycat apps and websites would mushroom across the internet.
The expert group said if a consumer used such an app or website, it could collect the user’s personally identifiable information, financial data and other sensitive details, which can then be used to compromise the user’s accounts, carry out phishing attacks and identity theft.
In a note of caution to the banks and other lenders, the working group said that apart from affecting the user, these fake lending apps also damage the reputation of the company that they impersonate.
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Digital lending in India
The research by the working group showed that the share of digital lending apps in India was still minuscule in comparison with physical lending.
In the case of banks, digital lending amounted to Rs 1.12 lakh crore against the lending of Rs 53.08 lakh crore through physical mode. In the case of non-banking finance companies (NBFCs), digital lending was proportionately higher as NBFCs lend Rs 23,000 crore through digital mode as against Rs 1.93 lakh crore via physical mode.
The research, however, showed that digital lending has grown at a rapid pace in the last 3 years, from Rs 11,671 crore in 2017 to nearly Rs 1.42 lakh crore in 2020.
Modus Operandi
Talking about the modus operandi of illegal digital lending apps, the RBI expert group observed that there has been an increase in fake customer care scams across the internet, especially those affecting financial services and online businesses.
The Working Group said these scams were used to collect sensitive information from users and defraud them. This can also damage the reputation of the digital lender.
The expert group also talked about the synthetic identity frauds, in which fraudsters create synthetic identities using valid but stolen Aadhaar numbers with accompanying false personally identifiable information.
The group said it was happening due to the user data being compromised in recent years due to some major data breaches and also due to the unintentional disclosure of sensitive data by the users on the social media platforms.
“Preventing synthetic fraud is difficult and hence, requires industry level partnership and close coordination with law enforcement to share information, identify trends and threats,” said the RBI expert group.
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