The RBI working group’s comprehensive review of these digital lenders and compilation of suggestions regarding the manner in which they need to be regulated is, therefore, timely. The segregation of digital lenders into balance sheet lenders and lending service providers (LSPs) by the working group makes it easier to frame rules. Balance sheet lenders who carry the credit risk in their balance sheet and have to provide the capital for these loans, pose a higher systemic risk. To prevent regulatory arbitrage, the RBI should frame the rules for all balance sheet lenders, irrespective of the regulator with which they are registered. An agency consisting of industry participants and regulators to rate digital lending apps for public use is a feasible idea.

Source: The Hindu November 26, 2021 00:01 UTC