Transparency Increases Trust, Converts Into More Business: Dr Ravi Modani

Transparency increases trust and eventually converts into more business for all, said Dr Ravi Modani, Founder and CEO, 121 Finance on RBI's new guidelines on digital lending platforms and other regulated entities.

The Reserve Bank of India (RBI) on August 10 had issued detailed guidelines that elaborated increased scrutiny and supervision over digital lending apps and lenders who engage with them, after several complaints of malpractice against such apps.

Dr Modani said, "It is a positive impact on NBFCs, since the regulatory arbitrage available to fintechs will go away. They would be able to grow their lending book and ultimately help them to reduce their borrowing costs."

Under the new standards, all loan disbursals and reimbursements are expected to be executed exclusively between the financial balances of borrower and the regulated entities (REs) like banks and NBFCs with no pool account of the Lending Service Providers (LSPs).

RBI in a circular said that a standardised Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract. All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) is required to be disclosed to the borrowers.

Dr Modani said that this is a welcome change, we already witnessed the success with home loans and bigger ticket loans, so why not digital loans as well now. I am a firm believer that transparency increases trust and eventually converts into more business for all, he added.

The central bank has also made the norms that digital lenders gathering customer information will currently have to get clients' consent and can acquire need-based information.

"Even today all offline or non-digital lending is driven by customer consent for each and everything, so why not for digital? With digital, it is far easier to receive consent with minimal time and effort required of the customer. The account aggregator-based consent-driven architecture will make it simple and possible, at the click of a button", said Dr Modani.

He further stated, "At the onset, it is more beneficial for the customers for sure because they finally get transparency and are enabled to make better and more informed choices. But I feel that eventually, even the lending platforms will benefit greatly. Since the guidelines define the roles and responsibilities of LSP and RE, and also gives it a legal structure, which gives a substantial confidence to RE to engage compliant LSPs who can deliver value to all."