Why in news?

• The Reserve Bank of India's Monetary Policy Committee (MPC)kept the repo rate unchanged for the fifth time in a row at 6.5 per cent.
• While announcing various steps, RBI also said that it will lay down guidelines for web aggregators of loan products to bring more transparency to digital lending.

What’s in today’s article?

• Digital Lending
• News Summary

Digital Lending

• Digital lending is the process of availing credit online.
  • It involves lending through web platforms or mobile apps, utilising technology in customer acquisition, credit assessment, loan approval, disbursement, recovery and associated customer service.
• Its increased popularity amongst new-age lenders can be attributed to expanding smartphone penetration, credit range flexibility and speedy online transactions.
• It includes products like Buy Now, Pay Later (BNPL), which is a financing option (or simply a short-term loan product).
  • BNPL allows one to buy a product or avail a service without having to worry about paying for it immediately.

Need to regulate digital lending

• Illegal lending apps in India
  • A report by the RBI, published in 2022, says that India has the maximum number of digital loan apps in the world.
  • The report has marked 600 loan apps illegal and said that the central bank.
• Low-income and financial unsavvy Indians are the targets
  • These apps mostly lend small sums between Rs 2,000 and Rs 10,000, targeting low-income and financial unsavvy Indians.
  • These loans come with huge interest rates and extortionate terms and conditions, to which borrowers have no recourse.
  • This increases the vulnerabilities of these borrowers by exploiting the unmet need for credit.
• Harassment by recovery agents
  • Such apps are dangerous as the harassment by recovery agents have driven many to suicide in the recent past.
    • In 2021, at least six people committed suicide in Hyderabad alone due to harassment by agents.
• Breach of privacy
• With just one tap, borrowers allow these lenders to access everything on their phone. The lender also get access to information such as PAN and Aadhar details.
• The apps, on the pretext of advancing a loan, obtain all information from the customers' phones which could later be used by the company to perpetrate some other financial crime.
• Acts as a tool for money laundering
  • More than a hundred apps related to loans, betting and dating successfully collected thousands of crores in revenue and repatriated them to China.
  • This was revealed an investigation conducted by the Enforcement Directorate (ED).

Steps taken by to regulate digital lending

• RBI has been designated as the nodal department for dealing with complaints against unauthorised digital lending platforms as well as mobile apps.
• In August 2022, RBI issued the first set of guidelines for digital lending in order to combat illegal activities by certain players.
  • These guidelines were issued in response to the recommendation of the Working Group on Digital Lending (WGDL).
• In September 2023, Union Finance Minister chaired a meeting with appropriate officials and launched a multi-agency crackdown on illegal loan apps.
  • To curb the menace of illegal loan apps, the RBI has been asked to prepare a ‘whitelist’ of legal loan apps.
    • At the same time, MEITY has been tasked with ensuring only such legal applications (list prepared by RBI) are available on app stores.
  • The RBI has been entrusted to ensure that the registration of payment aggregators be completed within a time frame.
    • A payment aggregator acts as a third party responsible for managing and processing merchants' online transactions.
  • The RBI has also been entrusted with monitoring ‘mule or rented’ accounts that may be used for money laundering.
  • RBI has further been asked to review and cancel dormant non-banking finance companies (NBFCs) to avoid their misuse by such app operators.

News Summary: RBI monetary policy update

• The RBI’s MPC unanimously decided to keep the repo rate unchanged at 6.5 per cent on worries over higher inflation amid uncertain food prices.

Key highlights of the announcements

• Raises GDP growth forecast
  • It revised upwards the real GDP growth forecast to 7 per cent for FY’24 from 6.5 per cent.
• Inflation projection
  • The inflation projection for FY24 has been kept unchanged at 5.4 per cent.
  • RBI said that although there has been broad-based easing in core inflation, risks to food inflation remain.
  • It added that food inflation may lead to an uptick in inflation figures in November and December.
• UPI payment limits
  • RBI raised the United Payments Interface (UPI) payment limits for hospitals and educational institutions to Rs 5 lakh from Rs 1 lakh per transaction.
  • RBI also decided to lay down guidelines for web aggregators of loan products to bring more transparency to digital lending.
• Increased limit on recurring e-payment mandates
  • The RBI has increased the limit on recurring e-payment mandates for credit card and insurance premia payments as well as mutual fund investments to ₹1 lakh from the current limit of ₹15,000.
    • E-mandate is a digital payment method to virtually enable and authorise merchants to collect recurring payments through debit or credit cards.
    • Under the existing framework, an additional factor of authentication (AFA) is currently required for recurring transactions exceeding Rs 15,000. Now it stands removed for transaction up to 1 lakh.
• Commercial sector growth
• The RBI said the buoyancy in public sector capex (capital expenditure), above-average capacity utilisation in manufacturing and domestic demand will help boost growth.
• The total flow of resources to the commercial sector stood at Rs 17.6 trillion during the current financial year, significantly higher than Rs 14.5 trillion last year.
• Public sector capex
  • Despite weakness in external demand, exports were positive in October.
  • Private consumption should gain from rural demand, manufacturing and buoyancy in services.
  • The healthy balance sheet of corporate, business optimism and government infrastructure spending will boost public sector capex.
• On Forex reserve
  • Foreign exchange reserves at $604 billion provide a strong buffer against global spillovers.
• On Rupee
  • The rupee has exhibited low volatility compared to its emerging market peers in 2023, despite elevated US treasury yields and a stronger US dollar.
  • This reflects the economy’s improving fundamentals.
• RBI to offer cloud storage services as part of digital public infrastructure
  • RBI is working on establishing a cloud facility for the financial sector in India as it looks to enhance the security, integrity and privacy of financial sector data.
  • The regulator is taking the same approach as the government has done with setting up ‘digital public infrastructure’ (DPI).
    • The underlying technology is built by the government, and is later outsourced to the private sector for developing various applications.
    • The biometric identity programme Aadhaar and United Payments Interface (UPI) are key examples of DPI.