India’s digital lending infrastructure has enabled the online loan sanctioning process. However, according to news agency ANI, Swaminathan J stated that a physical approach is still necessary for effective loan recovery during a media event on Tuesday, September 2.

According to the ANI report, the deputy governor raised concerns regarding fintech companies granting loans to customers with poor credit profiles in the digital lending sector and employing aggressive recovery tactics.

Swaminathan J mentioned that while loan sanctioning and disbursement have become increasingly digital, successful collection and recovery still require a physical presence and empathetic approach. Numerous fintech platforms operate under a business model that includes providing small-value loans to customers, often with poor credit profiles.

The deputy governor of the central bank emphasized that many fintech platforms’ business models involve offering small-value loans to customers with poor credit scores. This has led to the proliferation of aggressive recovery strategies, sometimes crossing ethical boundaries.

Swaminathan also highlighted a troubling practice of infringing on customers’ privacy. As per the report, recovery agents access borrowers’ data and contacts and use them as intimidation tactics. As quoted in the report, the deputy governor warned that these recovery methods violate individuals’ right to privacy. This poses a risk of tarnishing the reputation of regulated lenders associated with the fintech platforms.

Swaminathan focused on the RBI’s regulations on outsourcing, which stipulate that regulated entities are accountable for all actions their outsourced agents take, as reported.

The digitization process enables banks and non-banking financial companies (NBFCs) to leverage data for deeper insights into customer needs and behaviors. These insights can be utilized to create customized products and improve risk management and compliance, as mentioned in the report.

The RBI’s role as a regulator is to provide guidelines and frameworks that promote innovation and effectively manage risks. As reported, the primary objective of the RBI is to ensure the stability and integrity of the system without disrupting business operations.

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