RBI Considers Whitelist and Regulatory Body to Combat Illegal Lending Apps

The Reserve Bank of India (RBI) is taking a firm stand against the rising threat of illegal lending apps in the country. Their proposed solution involves a two-pronged approach: establishing a public registry of approved lending applications and creating a dedicated regulatory body.

The proposed registry, functioning as a “whitelist,” would showcase only legitimate lending apps. Oversight of this whitelist would fall under the purview of a newly formed agency – the Digital India Trust Agency (DIGITA). According to reports, any lending app lacking DIGITA’s verification would be considered unauthorized and face legal repercussions from authorities.

This initiative arises from a series of tragic suicides linked to the aggressive tactics employed by some digital lenders. These platforms have been accused of luring unsuspecting borrowers into debt traps with exorbitant interest rates and resorting to ruthless collection methods.

RBI’s Multifaceted Response to Online Lending

Recognizing the dangers posed by unregulated lenders, the RBI has implemented a series of measures to control online lending platforms. In 2022, the government and the RBI collaborated with tech giant Google to establish stricter regulations aimed at curbing the spread of these illegal apps.

Officials identified various distribution channels beyond app stores, including websites and unofficial download sources. They urged Google to take action against these avenues. Google responded by removing over 2,500 fraudulent lending apps from its Play Store in December of 2023.

Combined Efforts: Whitelist Creation and App Removals

Concurrent with the collaboration with Google, the RBI shared a list of legitimate online lending apps with the Ministry of Electronics and Information Technology (MeitY). This “whitelist” served as a reference point for a major crackdown in the previous year, leading to the removal of many illegal apps.

The issue of unauthorized lending through online platforms was further addressed during the 28th Financial Stability and Development Council held in February 2024. Finance Minister Nirmala Sitharaman and key government officials participated in discussions focused on tackling this problem.

Challenges Remain Despite Crackdown

While the government has intensified efforts to eliminate illegal lending platforms, their presence continues to be a concern.The Controller General of Defence Accounts (CGDA) issued a warning in January 2024 about two particular digital lending apps, Toop and CASHe, noting possible security threats.

Despite these challenges, the Indian lending technology market is expected to experience significant growth, reaching a potential market value of $1.3 trillion by 2030. This growth is attributed to the increasing penetration of internet and smartphone usage in India.