Delhi HC directs RBI, Centre to ensure compliance of framework on e-lending

The RBI said online lending platforms are deployed by banks/NBFCs for the grant of loans that can either be owned by them or availed by them under the outsourcing arrangement.

The Delhi High Court Wednesday directed the Reserve Bank of India and the Centre to ensure the implementation of the central bank’s framework on regulation of digital lending platforms.

A division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad in its January 25 decision observed that the RBI had issued a framework on August 10, 2022, on the regulation of digital lending platforms, including online lending platforms and mobile applications, based on the recommendations of its working committee, and hence no further orders were required.

“However, the Reserve Bank of India and the Government of India shall ensure strict compliance of the regulatory Framework released vide Press Release dated 10.08.2022, and in respect of recommendations which are for consideration for the Government of India, the Government of India will take immediate steps at an early date in accordance with law,” the high court said.

The high court was hearing a public interest litigation seeking a direction to the Centre to regulate and control the working of online digital lenders engaged in lending money through mobile applications or any other platform, and restrain them from charging exorbitant interest on the loan from borrowers, harassing the borrowers and to save the borrowers from recovery agents and to fix the maximum interest of rate chargeable by online digital lenders. The plea sought the setting up of a grievance redressal mechanism for borrowers in every state/Union of India.

The litigant said that on Google Play Store, there are 2,000 apps which give loans to borrowers of small amounts. It was argued that the RBI, state governments or the Centre had not fixed the “maximum interest rate”. It was also argued that certain online loan companies are functioning as non-banking finance companies (NBFCs) regulated by the RBI, however, the central bank has not fixed any cap/ceiling in respect of the rate of interest.

The RBI said online lending platforms are deployed by banks/NBFCs for the grant of loans that can either be owned by them or availed by them under the outsourcing arrangement.

“Lending activities over digital platforms or apps can also be undertaken by other entities regulated by the state governments under statutory provisions, such as the money lending acts of the concerned states,” it said.

The RBI said lending activities by such other entities over a digital platform are outside the “direct regulatory purview” of the relevant laws under which it derives power to regulate and supervise such entities.

The central bank also submitted before the high court that it had constituted a working committee to look into digital lending, including lending through online platforms and mobile apps, and to look into the granular aspects of financial technology and its implications and to review and reorient the regulatory framework.

The RBI said the committee had given certain recommendations for both the central bank and the Centre on the issue. The Centre said it would take “appropriate decisions in accordance with law within a reasonable time”.