Loan Sanctioning Is Digital but Recovery Still Needs Feet on the Street

 Mumbai: The Reserve Bank of India (RBI) has defended its heightened compliance requirements and its recent crackdown on fintechs and other regulated entities stating that it is required to protect depositors and preserve financial stability.

“Rather than viewing regulators as disruptors, I would urge industry to see the regulator as a partner towards a stable and prosperous financial ecosystem. It is therefore essential to appreciate the intent behind regulations, which are designed to protect customers, ensure fairness, and maintain stability. Let us channel our creativity into innovating products and services that not only comply with regulations but also enhance the overall health and inclusivity of the financial system,” said Swaminathan J, deputy governor, RBI at a media event.

He cited the example of the loan recovery process of fintechs that still require a 'feet on the street' approach, even though the loan sanctioning process is digital.

He said that with the digital infrastructure at place, many fintech players are giving loans to customers with poor credit profiles, and on default, using aggressive recovery tactics. Such practices could seriously damage the reputation of the regulated lenders associated with these platforms, he warned.

“Many fintech platforms operate on a business model that involves extending small-value loans to customers often times with poor credit profiles. Unfortunately, this is often followed by aggressive recovery tactics, such as invading customers' privacy by accessing their contacts and personal data.”

He said digitisation allows banks and non-banking financial companies (NBFCs) to leverage the data for more insights into their customer needs and behaviours, which can be used to make tailor-made products aside from better risk management and compliance.

According to the deputy governor, even though a regulated entity may rely on third parties to perform certain activities, it remains ultimately accountable for the actions of its outsourced agents.

Swaminathan said that there is a narrative that the regulator's actions may curb innovation or intrude excessively into business operations. There is also a feeling that regulators must be more supportive of risk taking.

The RBI's role as a regulator is to provide guidelines and frameworks that encourage innovation and manage risks effectively. The primary goal of RBI, is to ensure the stability and integrity of the system and not to affect business operations, he said.