The Reserve Bank of India ("RBI") has reportedly been planning to initiate the establishment of a Digital India Trust Agency ("Agency"), in order to curb financial frauds and cybercrimes which have been uprising in the digital lending space. This Agency is intended to be involved in creating a systematic procedure of verifying legitimate digital lending application and resolving the concerns surrounding unauthorised digital lending apps. This Article analyses the necessity and key features of the RBI's reported initiative and also examines the potential outcomes the Agency might have in the flourishing digital lending industry in India.
Need for the Agency
This move by the RBI comes on the basis of a thorough research and published report, dated November 18, 2021 titled 'Report of the Working Group on Digital Lending including lending through Online Platforms and Mobile Apps' ("Report"). The Report highlighted that many digital lending applications have such mechanism to obtain sensitive financial information of the user desiring to lend money and assessing the individual's capacity to lend, whether by the user's consent or otherwise. Such mechanisms often involve requesting access to various apps and services on the user's phone. This has been a key concern for consumers and regulators alike, according to the RBI. Several consumer complaints were analysed that cite instances of digital lenders or digital lending apps misusing the high-risk data collected.
With the increasing number of lending applications, the trend of illegal and fraudulent applications will continue to rise, and all users may not be able to easily identify legitimate applications. Additionally, numerous applications and website imitating legitimate lending platforms are likely to proliferate across the internet. If a consumer uses their personally identifiable information, financial data, or other sensitive personal information, it could potentially lead to compromised accounts, phishing attacks and identity thefts. This not only harms the users but also damages the reputation of the legitimate business that these fake apps impersonate.
Therefore, having a proper framework for dealing with digital lending platforms becomes critical for regulatory agencies, thus, comes into the picture, the RBI's contemplation to formulate an agency, dedicated solely to the matter discussed above.
Functions of the Agency
The Agency will establish and maintain a public register of verified lending platforms to help the public distinguish between government-verified applications and non-verified application, which will also not be listed on popular online application stores like Playstore or Appstore. Consequentially, non-verified applications will be deemed unauthorized by law enforcement agencies to conduct business. Thus, it will become mandatory for any market participant to seek approval from the Agency. The Agency will become the primary authority in the digital lending market, serving the sole organization granting approvals based on the directives issued by the RBI. The specific grounds for a digital lending platform to seek approval or the conditions required for such approval are currently under consideration by the relevant authorities. However, it is clear that the Agency shall be responsible for preventing illegal lending apps from emerging by assessing their credibility and determining their approval status.
The RBI has already taken proactive measures by providing a list of 442 (four hundred and forty two) unique digital lending apps to the Ministry of Information Technology for whitelisting with Google. Consequently, Google removed over 2,200 digital lending apps from its Play Store between September 2022 and August 2023. This collaborative effort emphasizes the crucial role of tech platforms in working with regulatory authorities to eliminate illegitimate apps from online application stores.
Conclusion
The RBI's initiative to establish the Agency represents a significant step towards addressing the challenges posted by the proliferation of unauthorized and fraudulent digital lending applications. By instituting a comprehensive framework for verifying and approving legitimate digital lending platforms, the Agency aims to protect consumers from financial fraud and cybercrimes. The establishment of a public register of verified applications will empower users to make informed decisions and distinguish between authorized and illegitimate applications.
As the digital lending industry in India continues to grow, the role of the Agency will be crucial in maintaining the integrity and credibility of the market. By preventing illegal lending apps from emerging and ensuring that only verified platforms are allowed to operate, the Agency will help build trust among consumers and foster a safer and more transparent digital lending environment.
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